Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : GVC Ltd. Law Firm

COPELAND v. PENSKE LOGISTICS LLC (April 6, 2012)

When Penske Logistics lost its contract to provide transportation services for the Indianapolis Star, it went out of business. It agreed to provide its employees several benefits, including recall rights, severance, and reemployment assistance. Several former employees filed suit against both Penske and the Union pursuant to Section 301 of the Labor-Management Relations Act. Chief Judge Young (S.D. Ind.) granted summary judgment to the defendants. He concluded that plaintiffs failed to meet either prong of a Section 301 action. First, they did not even allege that Penske violated the collective bargaining agreement. Second, they cannot contend that the Union violated its duty of fair representation since they never even complained to the Union. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Tinder and Hamilton affirmed in part and vacated and remanded in part. The Court addressed the two arguments made on appeal. First, the plaintiffs contend that Penske could have been more generous with its benefits and had the cost covered by the Star under its contract with the Star. The Court noted that this claim was not a federal labor law claim, but rather a common law contract claim. The claim does not arise out of the same "controversy" as the alleged breach of the collective bargaining agreement so there is no supplemental jurisdiction. Although the plaintiffs allege diversity jurisdiction, they failed to provide any facts in support and the Court noted that it appeared that diversity jurisdiction did not exist. Second, with respect to the plaintiffs' contention that the Union failed to bargain hard enough, the Court identified a second jurisdictional problem. Section 301 only covers actions for violation of the collective bargaining agreement. The plaintiffs do not allege a violation of the agreement -- only a failure to bargain hard enough to get a better agreement with Penske. That claim is a claim alleging an unfair labor practice which is within the exclusive jurisdiction of the National Labor Relations Board. The Court affirmed summary judgment on the contract claim and remanded to dismiss for lack of jurisdiction on the unfair labor practice claim.

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ANDERSON v. AON CORPORATION (March 29, 2012)

Robert Anderson owned shares in Aon Corporation during a time when, he alleges, the company was mismanaged and, furthermore, was concealing the mismanagement. He brought suit, alleging that the concealment caused him to hold his shares rather than sell them. In an earlier appeal, the Seventh Circuit held (opinion and intheiropinion) that he stated a "holder" claim under California law. Unlike federal law, California does not require the purchase or sale of a security for a damages claim. On remand, Judge Pallmeyer (N.D. Ill.) dismissed the complaint on the grounds that the complaint did not adequately allege defendants' state of mind, Anderson's reliance, or the damages related to the concealment rather than the mismanagement. Anderson appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Williams and Tinder affirmed. The Court concluded that the district court was correct -- albeit for a different reason. The first appeal identified causation as an issue and Aon advanced it as an alternative grounds for affirmance. The Court noted that many active professional traders trade in Aon stock. As a result, the price adjusts more quickly than individual traders can respond. Anderson complains that he was damaged by Aon's concealment. But if Aon had disclosed the corporate mismanagement earlier, the market would have responded before Anderson could have. He cannot show otherwise.

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AMERICAN SAFETY CASUALTY INSURANCE COMPANY v. CITY OF WAUKEGAN (March 16, 2012)

In 2002, DNA evidence exonerated Alejandro Dominguez from a crime for which he was convicted in 1990. He brought suit against the City of Waukegan in 2004, alleging both state and federal claims. Since Waukegan had insurance against these types of claims, it notified its carriers. However, it had different carriers in 1989 (the year of the arrest) and 2002 (the year of exoneration). Both carriers refused to defend, pointing the finger at each other. The district court dismissed his wrongful arrest claim as untimely since a wrongful arrest claim accrues on the date of the arrest. The wrongful conviction claims, which accrue upon exoneration, were tried to a jury. He received a verdict of approximately $9 million against an individual Waukegan police officer. American Safety, the 2002 carrier, eventually brought a declaratory judgment action against Waukegan, which then brought the other carrier into the suit. Judge Kendall (N.D. Ill.) concluded that American Safety’s policy did apply and that it had to indemnify Waukegan for the verdict as well as its legal fees in defending the action. The insurance companies appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Shadid affirmed. The Court noted that the district court relied on McFatridge in reaching its conclusion. McFatridge held that the “occurrence” in malicious prosecution claim coverage is the exoneration since there is no claim until the plaintiff is exonerated. The Court, in that case, noted that an Illinois appellate court decision reached the same result and the Illinois Supreme Court has never spoken on the subject. The Court rejected the insurance companies’ argument that McFatridge was decided erroneously, while at the same time recognizing that it is the minority view. The Court added its view that the result was the right result for policy reasons. It also refused to certify the question to the Illinois Supreme Court. The Court turned to American Safety’s other challenges. First, it rejected the notion that American Safety’s duty to defend did not arise until the City paid its deductible. Next, it rejected the argument that the refusal to defend was not unreasonable because McFatridge had not yet been decided. The Illinois case had been on the books for years and American Safety could have filed a declaratory judgment action instead of simply refusing to defend. Finally, the Court rejected American Safety’s argument that the award of fees should be treated as damages rather than costs since the City had been dismissed as a party and was incurring them as part of its obligation to defend the officer. But the policy also covers the individual officer as well as the city so the fees are “costs” under Section 1988 and not damages.

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MALIK v. FALCON HOLDINGS, LLC (March 14, 2012)

Falcon Holdings owned and operated over 100 Church’s Chicken restaurants. Aslam Khan was a 40% owner of Falcon — Sentinel Capitol Partners II and others owned the rest. A number of restaurant managers allege that they accepted lower salaries in return for Khan’s promise that he would own 100% of Falcon one day and that he would provide 50% of its equity to the store managers. Kahn became 100% owner in 2005 but provided no reward to his managers. In fact, he denies that he made the promise. Judge Guzman (N.D. Ill.) denied the claim of three of the managers on the grounds that they had not adequately estimated damages. The managers appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Circuit Judge Bauer and District Judge Shadid vacated and remanded. The plaintiffs’ damages theory was simple—the price Khan paid Sentinel implied that Falcon was worth $48 million, half of which is $24 million. The $24 million, when divided among the 20 managers, equals $1.2 million apiece. The Court disagreed with the district court’s rejection of that theory. First, the district court said that the value of the whole could not be implied from the price paid for a part. But, what a willing buyer will pay is the “gold standard of evaluation,” said the Court. Khan does not assert that he overpaid Sentinel and, if he underpaid, the plaintiffs have underestimated their damages—that is no reason to dismiss the case. The second reason the district court rejected the damage estimate was that it depended on how much Khan could borrow. Again, the Court noted that the plaintiffs have only underestimated their damages if Khan’s ability to borrow artificially kept the price down. Notwithstanding its disagreement with the district court, the Court did identify its own concern with the damage estimate. The promise alleged by the plaintiffs is not that Khan promised them 50% of Falcon’s value, but that he promised 50% of its equity. Assuming that Khan borrowed significant amounts to finance his purchase of the outstanding ownership, 50% of the company’s equity does not equal 50% of its value. But the record is silent on the details of the transaction and the defendants had not asked the Court to affirm on that ground. The Court also pointed out that might be unreasonable to assume that Khan’s promise, even if made, meant that he was going to turn over the equity without any terms or conditions. The Court noted that that it would have serious tax and structural disadvantages. If, as is more likely, the promise (if proven) would have entailed other terms and conditions, the contract may be too indefinite to enforce. But again, defendants do not seek affirmance on those grounds. Finally, the Court rejected the defendants’ argument that the judgment should be affirmed because plaintiffs quantified their damages too late in the proceedings. Defendants asked for no relief in the district court on that issue and have shown no injury.

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KING v. ACOSTA SALES AND MARKETING (March 13, 2012)

Susan King was employed as a business manager for Acosta Sales and Marketing, a food broker, for six years. When she quit, she brought suit against her former employer, alleging a hostile work environment for women in violation of Title VII and unequal pay for women in violation of Title VII and the Equal Pay Act. Judge Gettleman (N.D. Ill.) granted summary judgment to the employer on both counts. King appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Wood affirmed in part, reversed in part, and remanded. The Court first addressed the hostile work environment claim. The district court had addressed that claim in two parts: whether there were hostile working conditions in the 300 days immediately prior to the EEOC charge and whether acts prior to that date could be attributed to Acosta. That was error. Under Morgan, it does not matter when the individual acts of an ongoing employment practice occurred if the practice continues into the 300-day period. Notwithstanding the error, the Court concluded that a remand was not necessary. Almost all of the acts constituting the alleged hostile work environment were the result of one coworker who quit almost 2 years before the EEOC charge. Although there were a few episodes after that, the Court concluded that they were not severe or pervasive enough to sustain a hostile work environment charge. The Court turned to the unequal pay claim. It found significant differences between the pay for the male managers and for the female managers, both in terms of starting salary and raises. The district court erred in its approach to these claims. It had concluded that Acosta had satisfied its burden by articulating education and experience as explanations for the differences in pay and that King had not shown that that explanation was pretext. The Court first noted that this burden-shifting approach only applies under Title VII. Under the Equal Pay Act, the defense that the difference in pay is the result of a factor other than gender is an affirmative defense on which the defendant has both the burden of production and persuasion. Second, the Court concluded that the differences could not be explained by Acosta’s education and experience claim. Education and experience might account for differences in starting salaries but the males at Costa received substantially greater increases in pay after hire as well. A reasonable juror could conclude that the reason for the differences was indeed sex discrimination. Both the Title VII and the Equal Pay Act claim must be remanded for trial.

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TOWNSEL v. DISH NETWORK L.L.C. (February 16, 2012)

Jacqueline Townsel purchased satellite TV services from DISH Network. Townsel signed up for two years of service and agreed to pay a termination fee if she discontinued the service within two years. When Townsel stopped paying her monthly charge during the contract term, DISH charged her debit card for the termination fee. Townsel brought suit against DISH, alleging that the debit card charge violated the Social Security Act's § 407 (a). That section provides that Social Security benefits are not assignable. Townsel alleges that the only funds in the account tied to her debit card are her Social Security benefits and that, therefore, her agreement to allow DISH to charge that card was a prohibited "assignment." Judge Guzman (N.D. Ill.) dismissed the complaint. Townsel appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Hamilton affirmed. The Court first considered the question of whether § 407 (a) operates as a private damages action or is merely a defensive measure. No other court of appeals has decided the question, although a few district courts have said no. Ultimately, the Court decided to do the same thing the district court below did -- leave the question alone and go to the merits. On the merits, the Court identified a fundamental distinction between spending money from an account whose sole source was Social Security benefits and assigning those benefits. All Townsel did is engage in a commercial transaction in which she allowed DISH to charge her account under certain circumstances. She could have given them a different account or she could have put non-Social Security benefits in her debit card account. Her agreement with DISH was simply not an assignment.

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PHILLIPS v. ALLEN (February 10, 2012)

Ruby Graham and her mother Elizabeth were attacked as they entered the Bellwood, Illinois Library. The attacker stole $5,000 from Ruby and shot both of them. Ruby gave police a description of their attacker. A police officer visited Elizabeth in the hospital the following day to question her. Ruby and a neighbor were there at the same time. The neighbor informed the officer of the rumor that Wydrick Phillips, who lived in same neighborhood, was robbing people after they cashed tax refund checks. Later that same day, Ruby positively identified Phillips as her attacker from a group of photographs at the police station. Phillips was arrested and charged but later acquitted. There was no corroborating evidence and significant exculpatory evidence, including an alibi. Phillips brought suit under § 1983, complaining that he had been arrested without probable cause. Judge Dow (N.D. Ill.) granted summary judgment to the defendants. Phillips appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Circuit Judges Posner and Wood affirmed. Phillips' principal argument on appeal is that Ruby's photo identification was unreliable given her presence earlier in the hospital room when the neighbor repeated the rumor about Phillips. The problem is that Phillips relies principally on Biggers, which addressed the admissibility of evidence at trial. It held that photo spread identification evidence could not be used at trial if it was the result of an unduly suggestive procedure. The Court considered both the law and the psychology behind witness identifications in rejecting Phillips' request to extend Biggers from the trial phase to the arrest phase and from a rule of evidence to a basis for damages. The Court also commented that Phillips would not benefit even if it decided to accept his invitation to extend Biggers. The defendants would certainly be entitled to qualified immunity for their past actions.

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HEINEN v. NORTHROP GRUMMAN CORP. (February 7, 2012)

Gregory Heinen accepted a job offer from Northrop Grumman Corp. that required him to move from his home in California to Illinois. As part of the hiring process, Heinen entered into an employment contract, a contract agreeing to abide by Northrop's dispute resolution process, and a relocation agreement. The dispute resolution process requires arbitration of all employment related disputes. The other two contracts do not refer to arbitration. Heinen brought suit in Illinois state court alleging that Northrop breached the relocation agreement. Northrop removed on diversity grounds, asserting that Heinen was a Massachusetts "resident," and therefore a Massachusetts "citizen." Judge Conlon (N.D. Ill.) dismissed the complaint on the ground that Heinen's agreement to arbitrate extended to his complaints about the relocation agreement. Heinen appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Rovner and Tinder affirmed and denied Northrop's motion for sanctions. The Court had little difficulty in affirming on the merits. The dispute resolution agreement requires Davis to arbitrate "[a]ny employment-related claim." The clause is broad enough to cover a relocation benefits dispute since relocation benefits are related to employment. Collateral to the merits, the Court was quite critical of the lawyering in two respects. First, Northrop's removal papers referred only to residence. Citizenship for diversity purposes is based on domicile, not residence. The amended removal papers, filed after oral argument, were quite sufficient to show that Heinen was domiciled in Massachusetts. Northrop's failure to adequately allege citizenship in its original removal papers wasted a lot of the Court's time and the clients’ money. Second, Northrop sought sanctions for what it called a frivolous appeal but failed to follow Rule 38 in doing so and then unnecessarily filed a separate motion for sanctions after oral argument. The Court agreed that the appeal was frivolous but declined to award sanctions to a party that itself fails to follow the rules.

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DIXON v. ATI LADISH LLC (January 26, 2012)

In late 2010, Allegheny Technologies, Inc. acquired Ladish Co. for cash and stock. Apparently Allegheny overpaid because its share price dropped after the announcement. Irene Dixon, a Ladish shareholder, filed suit alleging that the company and its directors violated federal and state law by failing to disclose certain facts in its registration statement and proxy solicitation. Judge Stadtmueller (E.D. Wis.) dismissed the federal claims on the grounds that Dixon did not satisfy the Private Securities Litigation Reform Act of 1995 and dismissed the state claims pursuant to the business judgment rule. Dixon appeals the dismissal of the state claims.

In their opinion, Seventh Circuit Chief Judge Easterbrook, Circuit Judge Cudahy, and District Judge Pratt affirmed. The Court addressed a few preliminary matters. First, the fact that the sale has consummated does not moot Dixon's claim for damages. Second, the Court noted that the Securities Litigation Uniform Standards Act of 1998 preempts most state law claims that rely on registration or proxy statement omissions. Since the defendants did not raise it, they have forfeited the argument. The defendants may not have forfeited much, since Dixon's claim may well fit within an exception to Act's preemption. On the merits, the Court noted that the business judgment rule simply does not apply. Since it is a common law rule, it does not apply when the state has addressed the subject by statute. Wisconsin has. Its statute provides that a director is not liable for a breach of duty unless that breach fits one of the statute's subsections. Defendants rely on the statute on appeal but did not cite it in the district court. Instead of attempting to show that her allegations fit within one of the statute's subsections, Dixon's only response is that the defendants forfeited their reliance on the statute. The Court disagreed. The defendants made the substantive argument in the district court. A party does not waive an argument simply by failing to cite the best authority for it in the district court. Defendants' conduct does not fit within any of the subsections – Dixon's claims fail.

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BLUE CROSS BLUE SHIELD OF MASSACHUSETTS, INC. V. BCS INSURANCE CO. (December 16, 2011)

BCS Insurance Co. is a captive insurer owned by the various state Blue Cross Blue Shield plans. The contract between BCS and the state plans requires arbitration if BCS declines a state plan’s request for reimbursement. After a number of healthcare providers filed class actions against the state plans, twelve state plans sought a defense and indemnification from BCS. BCS declined and the plans demanded arbitration as a group. When the plans' arbitrator and BCS' arbitrator could not agree on a third, several of the plans requested the district court to make the appointment under § 5 of the Federal Arbitration Act. BCS cross-petitioned to compel individual, rather than consolidated, arbitration. It argued that the consolidated versus individual arbitration issue was a question for the district court, rather than one for the arbitrator. Judge Lefkow (N.D. Ill.) denied BCS' cross-petition and BCS appealed. Before the Seventh Circuit acted on the appeal, Chief Judge Holderman (N.D. Ill.) appointed the third arbitrator. BCS again appealed, arguing that the district court lost its jurisdiction to act on the plans' request at the time of the first appeal. The appeals were consolidated.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judge Cudahy and District Judge Pratt dismissed the first appeal for want of jurisdiction and affirmed on the second appeal. The Court first turned to whether it had appellate jurisdiction of the first, interlocutory appeal. The Federal Arbitration Act allows an appeal from an order denying a request for arbitration. BCS argues that its petition was just that – a motion to compel arbitration. Since it was denied, an appeal is proper. The Court disagreed. It noted that, notwithstanding the pleading’s title, BCS was not seeking arbitration. Arbitration was already ongoing. What BCS wanted was for a federal judge to order an arbitration panel to proceed in a particular way. Since the first order did not deny a request for arbitration, the Court dismissed it want of jurisdiction. With respect to the second appeal, the district court was well within its rights to appoint the third arbitrator. BCS does not even assert otherwise. Though it could have stopped there, he Court went on to address the underlying dispute -- whether a court or the arbitration panel rules on the consolidated versus individual arbitration debate. The Court stated that the district court should have allowed the arbitration panel to decide that question, under the Court's Wausau decision. The only question for court is whether the parties have agreed to arbitrate and here they have.

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RODRIGUEZ v. COOK COUNTY (December 15, 2011)

More than a decade ago, Angel Rodriguez was convicted of murder by a state court jury. An appellate court concluded that the evidence presented was insufficient to sustain the verdict and reversed. Rodriguez filed a federal civil rights suit against two officers involved in his arrest. He lost at the trial court level and the Seventh Circuit affirmed in 2006. Rodriguez obtained a "certificate of innocence" under Illinois state law in 2009. On the grounds that the certificate created a new cause of action, Rodriguez again filed suit in 2010 against the original defendants and three prosecutors. Judge Conlon (N.D. Ill.) dismissed the case against the original defendants on res judicata grounds and dismissed the case against the new defendants on statute of limitations grounds. She also dismissed the state law claims against the prosecutors on subject matter jurisdiction grounds, concluding that they were entitled to state immunity. Rodriguez appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Tinder affirmed. The Court addressed the Illinois law at issue. The statute, enacted in 2008, allows a person who has had a conviction set aside after serving prison time to obtain a certificate of innocence and file a petition in the Illinois Court of Claims for compensation. It does not, and could not, alter the effect of a federal court judgment nor does it, although it could, toll or extend the limitations period for a § 1983 suit. Rodriguez' claim accrued in 2000, when the Illinois appellate court reversed his conviction. His certificate of innocence does nothing to change that. The federal claims are time-barred. The Court did disagree with the district court's treatment of the state law claims against the prosecutors. It is not clear whether Rodriguez asserts his claim against the prosecutors in their official or personal capacities. But, if the former, the suit is really against the State and the prosecutors should be dismissed. If the latter (which the district court assumed), there is no jurisdictional barrier to the suit proceeding in federal court. The prosecutors could simply assert state law immunity as an affirmative defense. Nevertheless, since it was clear that the district court would have declined to exercise its supplemental jurisdiction over the state law claims, its error had no effect. The Court affirmed the dismissal without prejudice, as modified.

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COMMITTEE OF CONCERNED MIDWEST FLIGHT ATTENDANTS FOR FAIR AND EQUITABLE SENIORITY INTEGRATION v. INTERNATIONAL BROTHERHOOD OF TEAMSTERS AIRLINE DIVISION (November 30, 2011)

In mid-2009, Midwest Airlines was losing money and in dire financial circumstances. In fact, it had only nine airplanes. Republic Airways Holding purchased Midwest's parent. Within a few months, Republic had given up Midwest’s planes and its federal certificate. It kept its gates and its takeoff and landing slots. It integrated the seniority lists for several kinds of employees but it furloughed Midwest's pilots and flight attendants. Although the flight attendants were eligible to be rehired, the Teamsters Union would assign them new-hire seniority status. Several flight attendants filed suit, contending that the Federal Aviation Act requires Republic to merge the flight attendants' seniority lists. Judge Randa (E.D. Wis.) granted summary judgment to the union. The flight attendants appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Williams reversed and remanded. The Court turned to the language of the act. It noted that the Act requires seniority list integration when two "air carriers" are "involved" in a "covered transaction." Relying on the statutory language, the Court concluded that Midwest was an "air carrier" because they held a certificate, that Midwest was "involved" in the transaction even though it was its parent that was acquired, and that the transaction was a "covered transaction" because Republic acquired all of Midwest's stock and combined two air carriers into a single carrier. The Court noticed the absence in the Act of any reference to the bankruptcy or financial wherewithal of an air carrier. In fact, the Court added that the statute grew out of the acquisition of Trans World Airlines at the time of its bankruptcy. Congress clearly did not mean to exempt bankrupt air carriers from the Act’s requirements.

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SAMBRANO v. MABUS (November 8, 2011)

Cathleen Sambrano filed an EEOC charge alleging that the Department of the Navy, her employer, discriminated against her on account of her race, gender, national origin, age, and disability. Because she was a federal employee, the EEOC decided her claim on the merits and ruled against her. Sambrano filed a federal complaint repeating her allegations. Although the district court set a discovery schedule, Sambrano conducted no discovery and instead filed a motion for judgment on the pleadings. The court denied the motion. Sambrano still took no discovery. More than a year passed. Judge Norgle (N.D. Ill.) dismissed the case for want of prosecution pursuant to Local Rule 41.1. That prompted Sambrano's lawyer to file an ex-parte motion to vacate the dismissal. The court denied the motion (under Local Rule 5.3) for failure to serve the defendant. Sambrano appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Manion and Rovner affirmed -- and also issued a show cause order to Sambrano's counsel for filing a frivolous appeal and violating Circuit Rule 30. The Court noted that Sambrano could have argued that the district court erred in dismissing the case without any notice to the litigants. Instead, her brief contends that Local Rule 41.1 violates due process. In addition to making this frivolous argument, Sambrano violated Circuit Rule 30's requirement that an appellant include the order under review in an appendix. Counsel also submitted a false certification under Rule 30. The Court concluded that counsel's conduct implied that he is not competent to litigate in federal courts. Thus, it issued the show cause order why he should not be sanctioned, censured, suspended, or disbarred.

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AFFYMAX v. ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS (October 3, 2011)

Affymax and Ortho-McNeil-Janssen Pharmaceuticals created a joint venture in 1992 to develop peptide compounds. Their agreement assigned ownership based on development efforts. If a compound was jointly developed, it was jointly owned. If a compound was solely developed by either company, that company owned it. The parties also agreed to arbitrate all ownership disputes. Affymax brought suit in 2004 with respect to the ownership of the so-called '940 family and '078 family. After arbitration, a panel concluded that Ortho owned the ‘078 family and that the parties jointly owned the ‘940 family. Judge Kennelly (N.D. Ill.) confirmed most of the arbitration ruling but vacated the award with respect to its conclusion that Ortho owned the foreign patents in the ‘078 family. Ortho appeals (Affymax also appealed, but to the Federal Circuit).

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Wood and Tinder reversed. The Court first addressed appellate jurisdiction. Patent controversies that arise over a contractual dispute, as this one does, arise under the contract, not the patent. Therefore, the Federal Circuit's jurisdiction over patent disputes has not been triggered. The Court concluded that it was the proper forum, with jurisdiction over the district court's order vacating a part of the panel's award. On the merits, the Court noted that the Federal Arbitration Act gives four reasons a district court may rely on in vacating an arbitration award. The reason given by the district court here – the panel’s disregard of law -- is not one of those four reasons. The court's order was therefore error, if in fact that was the only basis for its conclusion. Before finding error, the Court considered whether the panel exceeded its powers, which is one of the four reasons permitting the vacation of an award, and is somewhat related to the district court's rationale. The Court concluded that the panel resolved the dispute pursuant to the 1992 contract’s directions and did not exceed its powers in doing so.

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PURCELL v. BANK OF AMERICA (October 3, 2011)

Kristine Purcell brought suit in state court against Bank of America under the Fair Credit Reporting Act and state law. She alleged that the bank reported to credit agencies that she was delinquent in her loan payments, when it knew she was not. The Bank removed the case to federal court and sought judgment as a matter of law on the FCRA claim. It argued that the Act did not provide a private damages claim for their alleged conduct. It also moved to dismiss the state claims with prejudice on preemption grounds. Judge Moody (N.D. Ind.) agreed with the Bank and dismissed the FCRA claim but concluded that the state law claims were not preempted. He dismissed them without prejudice. The Bank appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Sykes reversed and remanded. Section 1681t(a) of the Act provides that state law claims are not preempted except as provided in subsection (b). Subsection (b) states that no requirement or prohibition relating to furnishing information to credit agencies may be imposed "under the laws of any State." The district court concluded that "laws" means only statutes, not common law. The Court disagreed. As long ago as 1938, in Erie R. R. v. Tompkins, the Supreme Court held that the word "laws" in the Rules of Decision Act included all sources of law, including the common law. The Court also found support in the Dictionary Act and in Congressional drafting manuals. The Court rejected the district court's reliance on a perceived inconsistency within the Act if "laws" included all common law. In the Court's view, the subject sections were compatible and did not support the district court's conclusion. Therefore, the “laws” reference in FCRA includes the common law and the state law claims are preempted.

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KEELING v. ESURANCE INSURANCE COMPANY (September 26, 2011)

Esurance Insurance Company has issued over 50,000 automobile insurance policies with uninsured/underinsured motorist coverage. It has collected more than $600,000 in premiums and paid no claims. A class of policyholders brought suit for fraud against Esurance, alleging that the uninsured/underinsured coverage was worthless given the policy language. Esurance removed the action to federal court pursuant to the Class Action Fairness Act. Chief Judge Herndon (S.D. Ill.) concluded that the amount in controversy included the $600,000 in premiums, what little amount it would cost to amend the policy form as requested by the class, and punitive damages. Concluding that a $4.4 million punitive damage award was "legally impossible," he remanded the class action to state court on the ground that it did not meet the $5 million amount in controversy threshold. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Kanne reversed and remanded. The Court noted that the district court stated the correct "legally impossible" standard but applied it improperly. First, the value of the injunctive relief is not simply the cost of changing a form. Esurance currently reports a $125,000 annual profit on the challenged coverage. Eliminating the coverage (and the profit) would cost Esurance $1.5 million (the present value of $125,000 for 20 years). Therefore, the question becomes whether it is "legally impossible" for the plaintiffs to be awarded $3 million in punitive damages. A $3 million punitive damage award, compared to the $600,000 in actual class injury, would only be a multiplier of five. Illinois courts have affirmed punitive damage awards with higher multipliers. The Supreme Court has suggested that such a multiplier would not be unconstitutional. Although such an award might be improbable, the Court concluded that it was not "legally impossible" and that the amount in controversy requirement was met.

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SHOW v. FORD MOTOR CO. (September 19, 2011)

David Show and his passenger were both injured when Show's Ford Explorer rolled over after being struck by another car. They brought suit against Ford, alleging that the vehicle had an unstable design and was therefore defective. Plaintiffs never designated a design expert witness. Magistrate Judge Denlow (N.D. Ill.) concluded that plaintiffs could not prevail without expert testimony and therefore granted summary judgment to Ford. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Manion and Williams affirmed. The Court noted that Illinois law applied and that Illinois law recognized two approaches to a design defect case. The consumer-expectation test requires proof that the vehicle did not perform up to the safety standards that an ordinary consumer would expect. The risk-benefit test, on the other hand, looks instead to the balance between the benefits of the challenged design and the dangers inherent in the challenged design. The plaintiffs concede that expert testimony is required in a risk-benefit case but claim that is not required in a consumer-expectation case, since jurors know what an ordinary consumer would expect. As an aside, the Court questioned whether the need for expert testimony was a question of Illinois or federal law. If the two tests are merely methods of proof rather than theories of liability, federal law may apply as the law of the forum. Since the parties and the magistrate judge assumed that Illinois law controlled, the Court did not resolve the question. Even under Illinois law, the Court concluded that expert testimony is necessary. Under the consumer-expectation test, consumer expectations alone cannot resolve liability. There are questions of causation and physics and engineering that jurors are simply unable to resolve without expert testimony. The magistrate judge properly granted summary judgment in the absence of such testimony.

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LOOMIS v. EXELON CORP. (September 6, 2011)

Exelon Corp. maintains a defined-contribution pension plan for its employees. It offers its participants 24 no-load mutual funds among its 32 different options. The expense ratios of the 24 funds range from 0.03% to 0.96%, depending on how actively the fund is managed. The expenses are deducted from the fund assets and therefore, in effect, paid for by the participants. Some participants brought suit against the Plan under ERISA, alleging that the Plan violated its fiduciary duties by 1) offering only funds that are available to the general public, and 2) requiring the Plan's participants to pay for the funds’ expenses. Judge Darrah (N.D. Ill.) concluded that the claim was controlled by Hecker and dismissed it. The court also awarded $42,000 in costs. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Tinder affirmed. The Court stated that it had resolved the first of the plaintiffs' complaints in Hecker, where the Court held that a plan's menu of 25 mutual funds that were available to the public with expense ratios ranging from 0.07% to 1.00% was acceptable as a matter of law. The Court expressed no interest in overruling Hecker. The plaintiffs' second claim, that the Plan should cover the expenses of the funds, was not presented in Hecker. But if fails also. Although Exelon could have set up its Plan in that way, it was not required to. An employer can act in its own interest when it designs a plan and decides how much to contribute. The Court turned to the costs award. Rule 54(d), on which the district court relied in awarding costs, creates a presumption in favor of the prevailing party unless a statute or rule provides otherwise. ERISA, on the other hand, provides that a court in its discretion may allow costs to either party. Plaintiffs contend that ERISA is therefore a statute that provides otherwise and thus supersedes Rule 54 (D.). They further contend that ERISA requires a finding of bad faith or harassment to award costs. The Court conceded that it had never addressed the question head-on and that it's treatment of the question has not been consistent. It concluded that it did not need to resolve the question, because it disagreed with plaintiffs' premise that ERISA required a finding of bad faith in order to award costs. Both the rule and ERISA give the district court discretion to award costs -- that is what the district court did.

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EDGENET, INC. v. HOME DEPOT U.S.A. (September 2, 2011)

When Home Depot wanted a classification system for its inventory database, it went to Edgenet. Home Depot and Edgenet entered into a contract for the creation of the taxonomy. The contract provided that Edgenet owned the intellectual property and that Home People had a no-cost license as long as Edgenet continued to provide services. If Home Depot terminated its service contract with Edgenet, the license terminated and Home Depot had to either purchase a $100,000 perpetual license or stop using the taxonomy. In early 2009, Home Depot gave notice that it would no longer be needing Edgenet’s services and tendered $100,000 for the perpetual license. Edgenet filed suit alleging that Home Depot infringed its copyright on the taxonomy. Judge Stadtmueller (E.D. Wis.) dismissed the claim, concluding that Home Depot had a right to use the taxonomy under the contract. Edgenet appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Sykes and Tinder affirmed. The Court first addresses its jurisdiction and satisfied itself that the case really arose under the copyright law and was not merely a breach of contract case. On the merits, the Court criticized the lower court for relying on Rule 12(b)(6) instead of Rule 56 when it relied on matters outside the pleadings but nevertheless affirmed its result. The Court concluded that: a) Home Depot never used the taxonomy in any prohibited way, b) Home Depot had the perpetual license option on the taxonomy's current version, not just the original one, and c) Home Depot exercised its option while its license was still in effect.

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IN RE: AQUA DOTS PRODUCTS LIABILITY LITIGATION (August 17, 2011)

Aqua Dots are small, colored beads that can be fused into different shapes when sprayed with water. Moose Enterprises contracted with a Chinese company to produce the beads. The Chinese company substituted a toxic chemical for a specified one. As a result, some children became sick. Spin Master, Aqua Dots’ distributor, recalled the product once it learned of the problem. The recall notice advised parents to keep the toy away from children and to contact either Spin Master or the retailer (stores like Wal-Mart and Target) for a replacement or exchange. Although the notice did not mention a refund, both Spin Master and the retailers generally honored refund requests. Over 3 million of the toys were removed from the distribution channel before sale and approximately 600,000 of the 1 million or so that were sold were returned. Notwithstanding the recall notice and the returns, a group of plaintiffs whose children were not harmed and who did not ask for a refund brought suits. The suit sought full refunds and punitive damages and were based on the Consumer Products Safety Act as well as express and implied warranties and state consumer protection statutes. The Judicial Panel on Multidistrict Litigation transferred a number of suits to the Northern District of Illinois for consolidated pre-trial proceedings. Judge Coar (N.D. Ill.) denied class certification. He concluded that the plaintiffs would be better off following the recall procedure than pursuing litigation. Therefore, the class action was not a superior method of "adjudicating the controversy" as required by Rule 23(b)(3). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court first rejected the defendants' argument that plaintiffs lacked standing because there were no injuries. Conceding that there were no physical injuries, the Court nonetheless pointed out that the plaintiffs suffered a financial injury because they paid more for the beads than they should have. On the merits, the Court did not take issue with the district court's conclusion that a class action would be an ineffective way to resolve this dispute. It did take issue, however, with the district court's flagrant departure from Rule 23 in order to achieve its desired result. Rule 23 requires that a class action be a superior method of "adjudication." The Advisory Committee's notes to the rule illustrate that the drafters used adjudication in the legal sense. A recall is not an adjudication and the district court was wrong in considering it so. The Court reached the same result as the district court, however, by relying on Rule 23(a)(4) and Rule 23(b)(3)(D). The former requires a class representative that will "fairly and adequately" look after the class' interests. The Court concluded that a class representative who is willing to incur significant legal fees and notice fees in order to obtain a result already available to the class is not an adequate representative. The latter requires a district court to consider the difficulties in managing the class action. Here, the punitive damages claim rests on state law, which may differ from state to state. In addition, with no purchaser records, notice costs might exceed the price of the beads. The district court did not err in denying class certification.

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SULLIVAN v. CUNA MUTUAL INSURANCE SOCIETY (August 10, 2011)

CUNA Mutual Insurance Society maintains a retiree health care plan. CUNA contributed half the annual premium, the retirees contributed the other half. Beginning in 1982, CUNA calculated the value of each retiree's unused sick-leave and allowed retirees to use that to "pay" their share of the annual premiums. Although management employees had no other options, retirees who had been covered by collective bargaining agreements could choose to take the sick-leave value in cash. In 2008, CUNA amended its plan. It stopped its own contributions to the annual premiums. The retirees were liable for 100% of the premiums. It also discontinued its unused sick-leave credit program for management. For those retirees who could have taken their sick-leave credit in cash were treated as having done so and invested that value in an account administered by the health care plan. Four retired management employees and one retired non-management employee filed a class action pursuant to ERISA. Judge Crabb (W.D. Wis.) entered judgment on the pleadings to CUNA and the Plan. The class appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Manion and Hamilton (dissenting in part) affirmed. The Court noted that welfare benefit plans such as the one at issue differ from pension plans in two fundamental ways. One, they need not be funded. Two, employers can reduce or even eliminate welfare benefits altogether. In fact, CUNA inserted a clause in every version of its health care plan stating that it reserved its rights to amend or terminate the plan. The retiree class principally argued that CUNA violated ERISA by transferring assets of the plan to itself. They cite to the $120 million gain on CUNA's balance sheet when it terminated the plan. The Court disagreed. The $120 million entry did not reflect a company asset. The company carried that figure on its books to reflect its projected cost of contributions to the plan. The balance sheet merely reflected the company's removal of that liability. Alternatively, the retirees argue that the sick-leave balances, if not governed by ERISA, are governed by state law. The Court identified the same flaw with this argument -- the sick-leave balances are not assets at all. Finally, the retirees argue that the plan created vested rights, notwithstanding its reservation of rights language. They point to many documents created by the Plan that do not contain a reservation of rights. The Court was unpersuaded. The absence of a reservation of a right to amend in any particular document does not create a vested right.

Judge Hamilton dissented. He noted that, without ERISA, the retirees would have a straightforward promissory estoppel claim. CUNA made a promise. It intended its employees to reply upon that promise. The employees did rely. CUNA broke its promise and the employees were harmed. Judge Hamilton conceded, however, that ERISA preempts that result. Addressing the issue under ERISA, he concluded that the majority's test result was not mandated by ERISA’s language or Supreme Court or Seventh Circuit precedent. To the extent that courts have honored a reservation of rights clauses, he suggested they reconsider. A better approach might be a middle ground where a court could fashion an appropriate remedy under principles of promissory estoppel.

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PREMIUM PLUS PARTNERS v. GOLDMAN, SACHS & CO. (August 5, 2011)

On October 31, 2001, a Goldman Sachs employee provided its traders with certain information about 30-year government bonds that had not yet been made public. The traders bought futures contracts for the 30-year bonds and made a lot of money when the bonds’ price rose significantly. Unfortunately, their abnormal trading practices led to an SEC investigation. The SEC filed a civil complaint in September 2003. In March of 2004, Premium Plus Partners brought a class action on behalf of traders who had short positions in the bonds on October 31, no matter when they sold. Judge Der-Yeghiayan (N.D. Ill.) denied class certification. George Tomlinson, an individual investor who held a short position on October 31, then filed suit along with four other individual investors. Judge Bucklo (N.D. Ill.) dismissed the complaint on the pleadings, concluding that the two year statute of limitations had run before the class action had been filed (during which it would have been suspended). Meanwhile, in the Premium case, Goldman Sachs made an offer of judgment for the full amount of Premium's damages plus interest. Premium accepted the offer but also wanted to continue with the suit in order to certify a class and spread its costs among other class members. The court entered judgment on the Rule 68 offer and rejected Premium's proposed plan. Tomlinson then sought to intervene as class representative. The court denied that motion. Premium appeals the order denying class certification, Tomlinson appeals the order denying his motion to intervene, and Tomlinson also appeals the order dismissing his individual suit.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Sykes and Tinder affirmed with a modification. The Court first addressed the individual Tomlinson appeal. On the statute of limitations question, the Court assumed that the Merck federal securities fraud rule applies to a commodities fraud case because it was more favorable to Tomlinson than the understanding of the statute under the Commodity Exchange Act. Under Merck, the statute does not begin to run until the plaintiff discovers (or could have discovered) the essential facts of the violation, including scienter. Tomlinson admits that he was aware of his injury on October 31 and learned soon thereafter that Goldman Sachs had traded on nonpublic information. The central question, then, is whether Tomlinson could have discovered that Goldman Sachs acted with scienter. The Court concluded that all the facts regarding the transactions were in the public domain well before April of 2002. The fact that Goldman Sachs denied it and that the SEC did not file until late 2003 is of no moment. The district court did not err in dismissing the individual Tomlinson suit. The Court's decision on that appeal made their analysis of Tomlinson's intervention appeal rather simple. Since he has filed and lost his individual suit, he is not even a member of a potential class, much less an effective representative of the class. The Court turned to Premium's appeal. It noted that Premium had two options: a) it could have rejected the Rule 68 offer and continued with the case, or b) it could have accepted the Rule 68 offer and keep the case alive long enough for a viable class representative to intervene and pursue the class allegations. It cannotdo what it wants to do -- continue to push ahead with the case as class representative in the hopes of spreading some of its costs and increasing its net recovery. Finally, the Court did find an error in the district court's computation of interest. The court should have calculated a compound, rather than simple, interest. The Court remanded for a recalculation. 

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MORRISON v. YTB INTERNATIONAL, INC. (July 27, 2011)

YourTravelBiz.com (also known as YTB International) is based in Illinois and operates a business in which its customers purchase the right to act as a travel agent and sell travel services to the public. A number of its customers brought suit against YTB. They brought the suit as a class action on behalf of all of YTB’s customers and invoked jurisdiction under the Class Action Fairness Act. The class alleged that YTB's business practices violated the Illinois Consumer Fraud Act's prohibition on pyramid schemes. The Act prohibits businesses in which a customer's income is based primarily on inducing others to participate rather than on the amount of goods or services sold. Judge Murphy (S.D. Ill.) dismissed the complaint. First, he ruled that YTB's transactions with the non-Illinois class members were not covered by the Act. Second, he ruled that he should decline to exercise CAFA jurisdiction over the remaining intrastate claims under § 1332(d)(4). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Flaum and Rovner vacated and remanded. The Court rejected the district court's rationale for dismissing the case. CAFA jurisdiction is examined at the time of the filing of the complaint. Here, the plaintiffs proposed a nationwide class that met the CAFA jurisdictional requirements. Although the district court labeled its dismissal of the non-Illinois plaintiffs as one based on standing, it was wrong. The ruling that the Illinois Act does not cover transactions with out-of-state plaintiffs is a ruling on the merits, not a jurisdictional one. Notwithstanding the district court's error, the Court concluded that it also had to resolve the Illinois Consumer Fraud Act question. It likened § 1332(d)(4) to abstention, a concept under which a federal court has jurisdiction but declines to exercise it. If non-resident plaintiffs are covered by the Act, the claim is predominately interstate and a federal court should resolve the entire claim. Whether the non-resident plaintiffs are covered by the Act is governed by the Illinois Supreme Court's decision in Avery. There, the court concluded that the Act applies if "the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." The Court found the factors here quite balanced: YTB's only office was in Illinois, it included an Illinois choice of law clause in its contracts, and it conducted training sessions in Illinois -- but the class members come from many different states, the class members' losses incurred in different states, and some states may not prohibit pyramid schemes. On balance, the Court concluded that the factors, although they may not compel application of Illinois law, they certainly did not defeat its application. The complaint therefore must survive a motion to dismiss.

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WHITE PEARL INVERSIONES S.A. v. CEMUSA, INC. (July 26, 2011)

Cemusa is a U.S. subsidiary of a Spanish company that places street furniture (bus shelters, trash bins, etc.) in the European market. Cemusa hired White Pearl Inversiones, a Uruguayan company, to help it break into the United States market. Cemusa and White Pearl collaborated informally in responding to opportunities in Miami and San Antonio. Cemusa was successful in both cities. They entered into a Letter Agreement in March of 2003 in anticipation of a similar opportunity in New York City. Cemusa agreed to pay $240,000 for White Pearl's guidance on strategy and professional introductions. The Letter Agreement also provided that the $240,000 would be deducted from any compensation owed under the anticipated Master Agreement. Cemusa and White Pearl did enter into a Master Agreement days later. The Master Agreement provided that the parties would enter into city-specific RFP Agreements for each project. It also provided that White Pearl would receive 3.75% of Cemusa's net revenue in any given project if an RFP Agreement did not provide otherwise. The right to the fee vested on the issuance of an RFP. The Master Agreement was terminable by either party on 30 days notice. Cemusa terminated the Master Agreement in February 2004, before any RFP had issued. New York City issued its RFP the following month. Cemusa was awarded contracts in each of the city's five boroughs. Cemusa refuses to pay White Pearl any more than the Letter Agreement's $240,000. White Pearl filed suit for breach of contract as well as numerous other state law claims. Judge Andersen (N.D. Ill.) dismissed the complaint. White Pearl appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Williams affirmed. The Court first addressed jurisdiction. The complaint states that White Pearl is a Uruguayan corporation -- but Uruguay does not have corporations like the U.S. It does have limited liability businesses, however. The Court ultimately found that it did not have to decide White Pearl's status. It would either be treated like a corporation or like a joint-stock company. Since its only equity investors are citizens of Brazil, complete diversity is established either way. The Court next addressed the source of applicable law. The Letter Agreement expressly provides that is it is to be governed by the laws of Spain. But neither party mentioned the law of Spain. They both cite Illinois and New York cases. As a result, the Court considered dismissing the appeal on forfeiture grounds. It decided not to do so, but warned that it could in a less straightforward case. It turned to the merits. White Pearl does not claim that it was not paid the $240,000 provided for in the Letter Agreement. Likewise, White Pearl does not contest Cemusa's termination of the Master Agreement. A court will not resort to quantum meruit or unjust enrichment to modify a contract's price term. White Pearl agreed to a set fee. Cemusa is not obligated to compensate it for effort that it voluntarily offered above anything required by the contract. The Court did briefly mention the Illinois remedy in quantum meruit when a party terminates a contract after most of the work has been completed. It gave as examples the attorney who is fired right before the jury's verdict or the real estate agent who is fired the day before closing. White Pearl's efforts are not analogous, however. It is more akin to the attorney or real estate agent who consults with a client and does some preliminary work but is not hired. White Pearl is entitled to the $240,000 – no more.

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CONTINENTAL CASUALTY CO. v. SYCAMORE SPRINGS HOMEOWNERS ASSOCIATION (July 22, 2011)

Courtyard Homes at Sycamore Springs built and sold the residential units in a subdivision outside Indianapolis in the White River floodplain. The original developer had taken several steps to protect the homes in this low-lying area from the possibility of flooding. Courtyard reversed some of those protections when it filled in one of the retention ponds to build more units and converted some single-family units to duplexes. In September of 2003, a retention pond overflowed and flooded several homes during a period of heavy rains. The Homeowners Association brought suit against Courtyard, demanding that it reduce future flooding hazards. Courtyard tendered its defense to its insurer, Continental Casualty Company. Continental denied coverage and filed a declaratory judgment action. Meanwhile, the Homeowners Association and Courtyard settled the state court case for $335,000. The Association agreed to accept $35,000 of that from Courtyard. Judge McKinney (S.D. Ind.) granted summary judgment to Continental on the grounds that the complaint sought only property improvements, not compensation for loss. The Homeowners Association appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court agreed with the district court that the insurance policy did not cover any cost of improving flood protection. The Court also recognized, as did the district court, that part of the $335,000 settlement may have covered compensation for some homeowners' losses in addition to property improvements. But neither the settling parties nor the district court judge allocated that amount between improvements and compensation -- now it is too late.

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NEWPAGE WISCONSIN SYSTEM, INC. v. UNITED STEEL, PAPER & FORESTRY, RUBBER, MANUFACTURING, ENERGY ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION (July 12, 2011)

NewPage Wisconsin System recently closed several paper mills that it operates in Wisconsin in order to save money. It also stopped subsidizing medical care for retirees over 65. The Union claimed the subsidy elimination violated both the Retiree Health Plan and the Collective Bargaining Agreement. It brought suit under § 301 of the Labor Management Relations Act and ERISA § 502 in the Southern District of Ohio. Several weeks later, NewPage filed a declaratory judgment action in the Western District of Wisconsin raising the same issues. Judge Crabb (W.D. Wis.) dismissed the suit. She concluded that the court did not have subject matter jurisdiction over the ERISA claim. The court did have jurisdiction over the LMRA claim but dismissed in deference to the Ohio suit. NewPage appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Young vacated and remanded. The Court noted that § 2201 authorizes declaratory judgment actions but does not itself grant subject matter jurisdiction. Jurisdiction must arise from the substantive claims. The Court agreed with the district court that ERISA § 502(a)(3) only grants jurisdiction for a request for appropriate equitable relief. There is no such request here. Nevertheless, the Court found two other bases for jurisdiction. First, ERISA § 502(e) grants jurisdiction for actions arising under its subchapter. NewPage's claim does arise under that subchapter. In order to determine jurisdiction for a declaratory judgment action, a court must determine whether a complaint filed by the defendant would meet jurisdictional requirements. The Court looked to the actual complaint filed by the defendants in Ohio to conclude that it, and therefore the declaratory judgment action, came within § 502(e) jurisdiction. Second, the Court looked to § 1331’s general federal question jurisdiction grant. ERISA claims are always federal in nature. In concluding that the district court had jurisdiction of both the ERISA claim in the LMRA claim, the Court had to overrule part of its 2008 decision in Newell Operating Co. (another part of the decision was overruled in 2010). The Court next addressed whether the district court abused its discretion in dismissing the case in deference to the Ohio litigation. Since the district court decision, that case has stalled on procedural matters and is on appeal in the Sixth Circuit. Wisconsin now seems to be the better forum for litigating the issues on the merits. The Court remanded to the district court, however, to make that decision.

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COBIGE v. CITY OF CHICAGO (July 12, 2011)

In the summer of 2006, the Chicago Police arrested Patricia Cobige on a drug charge. It was not the first time she was arrested. She was sentenced to four years in prison in 1998 on drug charges and, again, sentenced to three years in prison in 2001. Unfortunately, after her 2006 arrest, she suffered a heart arrhythmia and died while in police custody. Her son brought suit against several police officers and the City under both state and federal law. A jury awarded $5 million in compensatory damages and $4,000 in punitive damages. The defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Williams affirmed in part and vacated and remanded in part. The Court examined the trial evidence. It concluded that a jury could have found that Cobige had uterine tumors, that she experienced severe abdominal pain as a result, that the pain led her to produce more adrenaline, that the adrenaline in combination with a pre-existing heart condition caused her death, that routine examinations and care would have prevented her death, and that four police officers ignored her complaints of pain. The City's principal argument is that the plaintiff's expert testified that death can occur only a short period after each spike in adrenaline and that there was testimony that Cobige died in a peaceful sleep. The Court conceded the point but countered that the jury was not required to believe the testimony that she died in her sleep. They could have reasonably believed that she continued to experience the pain throughout the night until her death -- or even that she had been dead for hours. The City also complained that plaintiff's expert was not an expert in police procedures. Again, the Court conceded the point but countered that his testimony only went to Cobige's need for treatment. The City could have presented evidence that she was not treated because of other extenuating circumstances. But it did not. The Court did take issue with the district court's exclusion of much evidence concerning Cobige's drug problem and history of arrests. The district court allowed her son to testify that she was a friend, a supporter, and a role model and that she provided wise advice. The court then admitted evidence only of Cobige 's latest drug conviction. The court relied on evidence Rules 404(b) and 609. Rule 609 is irrelevant in that it deals with attacks on the witness’ character for truthfulness and Cobige obviously never testified. Rule 404(b) also deals with evidence of character and prohibits such evidence when it is offered to show "action in conformity therewith." That is not why the City offered the evidence. It offered the evidence on the question of damages. The exclusion of that evidence requires a new trial, which should be limited to the subject of damages.

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NATIONAL RIFLE ASSOCIATION OF AMERICA v. CITY OF CHICAGO (June 2, 2011)

The District of Columbia, the City of Chicago, and the Village of Oak Park all had similar handgun ban ordinances in 2008. That was the year that the Supreme Court decided, in Heller, that the District of Columbia ban violated the Second Amendment. Chicago and Oak Park retained their bans, relying on the fact that the District of Columbia is a federal enclave. The bans were challenged. The Supreme Court reversed the Seventh Circuit and concluded that the Second Amendment applied to states and municipalities and struck down the bans. It entered its judgment on June 28, 2010. Within weeks, both Chicago and Oak Park repealed their ordinances. The Seventh Circuit directed the district court to dismiss the cases as moot. The plaintiffs requested attorneys’ fees. Judge Shadur (N.D. Ill.) rejected the request on Buckhannon and Zessar grounds -- that being a catalyst for change is not enough, a party must have a judicial order changing the legal status to sustain a fee award. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner reversed and remanded. In Buckhannon, defendants voluntarily changed the law before the district court rendered its decision. In Zessar, defendants voluntarily changed the law after the district court's decision but before its judgment. In both cases, fees were disallowed because there was no judicial order changing the parties’ legal status. But here, the plaintiffs do have a judicial order. They have a judgment of the Supreme Court that altered the party's legal relationship. The fact that the district court would have entered an injunction had the case not become moot does not alter that fact. The plaintiffs are entitled to reasonable attorney's fees.

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SAWYER v. ATLAS HEATING AND SHEET-METAL WORKS (May 26, 2011)

On May 18, 2009, Park Bank filed a state-court class action against Atlas Heating and Sheet-Metal Works. It alleged that Atlas' December 9, 2005 unsolicited facsimile violated the Telephone Consumer Protection Act. In March of 2010, after the Act's four-year statute of limitations had run, Park Bank voluntarily dismissed its claim. Isaac Sawyer, another facsimile recipient, was unsuccessful in his attempts to intervene in the suit. Sawyer filed his own class action on March 19. Atlas removed the case to federal court and moved to dismiss on statute of limitations grounds or to at least limit the action to an individual one. Judge Adelman (E.D. Wis.) denied the motion on the ground that the limitations period was tolled while the Park Bank suit was pending. Atlas appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed. The Court noted that the Supreme Court, in American Pipe, held that the filing of a class action tolls the statute of limitations as to all persons who would have been class members. Atlas contends that American Pipe does not control because: a) the first suit was voluntarily dismissed, b) the first suit was filed in state court, and c) the first class was never certified. The Court rejected each of these attempts to distinguish American Pipe. The statute of limitations was tolled and Sawyer's complaint is timely. The Court next addressed whether Sawyer was limited to an individual complaint instead of a class action. The district court had identified a conflict among the circuits on that question. The Court found no conflict. The cases Atlas identified presented not questions related to tolling, but questions related to the preclusive effect of a Rule 23 decision in the earlier case. If, for example, the court in the first case denies certification on numerosity grounds, that ruling would be binding on the later-filed action and preclude class certification. On the other hand, a denial because the class representative was inadequate would not bind other class members from pursuing certification. Here, Park Bank dismissed its complaint before the first court even ruled on certification. Sawyer is free to pursue class certification in his case.

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ROCHE DIAGNOSTICS CORP. v. MEDICAL AUTOMATION SYSTEMS (May 24, 2011)

Medical Automation Systems contracted with Roche Diagnostics to provide software for its glucose monitors and other products. The initial term of the contract was 2006-2010. Under the contract, Roche had the right to use the software for two years after the contract's expiration and had a right of first refusal to purchase MAS if MAS agreed to sell its stock to one of Roche's competitors "during the term of this Agreement." MAS notified Roche that it would not extend the agreement beyond 2010. Roche also discovered that MAS was in negotiations to sell its stock to a Roche competitor. Roche attempted to exercise its right of first refusal but MAS declined, relying on the fact that the transaction would not close until 2011, beyond the term of the Agreement. Although the contract required the parties to arbitrate any dispute regarding the right of first refusal, it allowed either party to seek an injunction pending arbitration. Roche did exactly that. Judge Barker (S.D. Ind.) found that allowing the sale would cause Roche irreparable harm by threatening both its ability to use the software for two additional years and its actual right of first refusal because of the difficulty in unwinding the transaction. She also found, however, that enjoining the sale would cause irreparable injury to MAS. She therefore issued an injunction allowing the sale’s completion but protecting Roche's ability to use the software for two more years. Roche appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Williams affirmed, as modified. On Roche's request for an injunction pending appeal, the Court issued an order allowing the completion of the sale and protecting Roche's two-year use but added several conditions to ensure that MAS was maintained separately after the sale. Although appellate review of an order of this type is deferential, the Court identified an error in the district court. In balancing the harm, the court included on MAS's side of the ledger the injury caused by the delay in resolving the merits -- whether Roche has a valid right of first refusal. But the Court noted that the delay and resulting uncertainty is a function of the party's arbitration agreement. Allowing the sale would not avoid any uncertainty. Without that uncertainty on the MAS side of the ledger, the balance of harm favors Roche. The Court therefore affirmed the district court's injunction by including the hold-separate conditions, which will protect Roche in the event it prevails on the merits.

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UNITED STATES OF AMERICA v. BUCHMAN (May 16, 2011)

Christopher Buchman borrowed money from the Department of Agriculture's Farm Service Agency. He secured the loans with mortgages on three pieces of property. When he defaulted, the United States filed suit to foreclose. His attempts to negotiate a resolution were unsuccessful and a default judgment was entered. A year later, the property was sold at public auction. Judge Griesbach (E.D. Wis.) confirmed the sale and entered a deficiency judgment against Buchman, rejecting his arguments that the sale price was inadequate and that he wanted an opportunity to redeem the property. Buchman appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Young affirmed. The Court first rejected the government's argument that the completed property transfer made the appeal moot. Although the Court did hold that it would not upset the completed sale, it noted that it could vacate the deficiency judgment or order the government to give up some of the proceeds of the sale. On the merits, the Court agreed with the district court that Buchman forfeited his claim that the court erred in not providing him an opportunity to redeem. He allowed a default judgment to be entered and, even then, waited more than a year to complain. With respect to the inadequate price argument, the Court applied the Wisconsin rule that a sale should be confirmed unless the price "shocks the conscience." Buchman’s only evidence was an appraisal. A competitive sale is better evidence of value than an appraisal. Also, Buchman never identified anyone who is or was willing to pay a higher price. The Court found no error in the sale confirmation.

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DENIL v. DEBOER, INC. (May 13, 2011)

Ronald DeBoer started a trucking business and managed it for 40 years. Then he decided to retire and sell the business. He entered into an arrangement with Peter Denil and Gerald Nardella, pursuant to which Denil and Nardella were to take over the business and prepare it for sale. DeBoer entered into employment agreements with Denil and Nardella, effective in October 2008. DeBoer had the right to fire either of them with or without cause, but had to pay a penalty if it was without cause. The parties also entered into a stock purchase agreement, pursuant to which Denil and Nardella agreed to purchase a certain amount of the company's stock. Their obligation to buy the stock was expressly conditioned on the execution of a buy-sell agreement, which the parties agreed to use their best efforts to conclude. Failure to conclude the stock purchase was defined in the employment agreement as "cause" for discharge. The parties were unable to conclude negotiations on the buy-sell agreement, Denil and Nardella never purchased the company stock, and DeBoer fired them. He treated it as a firing for cause on the ground that they failed to purchase the stock by the closing date set forth in the agreement. Denil and Nardella brought suit for reinstatement and damages. DeBoer brought a counterclaim for damages it incurred when it issued, and then reversed, a dividend in anticipation of the stock sale proceeds. Judge Crabb (W.D. Wis.) rejected all claims. Both sides appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed the best efforts clause. It rejected plaintiffs' argument that it amounted to an agreement to agree, which DeBoer violated. Wisconsin law does not honor such agreements. Since the contract did not define the term and neither party presented any evidence of intent, the Court treated it as a commitment to engage in good-faith bargaining -- and concluded that neither side violated it. Since the stock purchase agreement conditioned the obligation on the successful negotiation of the buy-sell agreement, the purchase obligation never arose. But the Court pointed out that the employment agreement did not contain the same condition-precedent language that the stock purchase agreement did. It simply stated that the failure to purchase the stock by the closing date was cause for termination. Denil and Nardella could have purchased the stock and kept their jobs (or at least avoided termination for cause) even though they were not obligated to do so under the stock purchase agreement. The Court also affirmed that the rejection of DeBoer's counterclaim. Denil and Nardella did nothing more than they were entitled to under their contracts. The fact that DeBoer incurred costs in issuing a dividend in anticipation of the stock purchase does not create any liability on their part.

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LEWIS v. CHICAGO (May 13, 2011)

In 1995, applicants for Chicago's Fire Department took a written examination. The City divided the applicants into three categories, based on their test scores. Applicants scoring 64 or less were rated not qualified. Applicants scoring 89 or more were rated highly qualified. The middle group was rated qualified but told in January of 1996 that they were not likely to be hired. The City hired applicants on 11 different occasions between May 1996 and November 2001. Each time, it chose at random from the well-qualified pool. An applicant in the qualified pool filed a charge of discrimination in March of 1997. The charge claimed that the 89 cut-off had a disparate impact on African-Americans. Several applicants later filed a class-action. Judge Gottschall (N.D. Ill.) concluded that the charge was timely, notwithstanding the fact that it was filed more than 300 days after qualified applicants were told that they were not likely to be hired. She also rejected the City's business necessity defense and awarded relief to the class. On appeal, the Seventh Circuit reversed, concluding that the charge was not timely. The Supreme Court reversed the Seventh Circuit, concluding that the 300-day clock starts anew in disparate impact litigation whenever the employer makes a hiring decision based on the challenged test. The Supreme Court's decision made the charge timely with respect to each hiring event except the first. The Supreme Court remanded for consideration of: a) whether the City preserved an argument that the charge was untimely with respect to the first hiring event, and b) whether the City preserved an argument that the plaintiffs failed to prove disparate impact arising from any particular use of the test.

In their opinion, Chief Judge Easterbrook and Judges Power and Posner affirmed the original district court opinion as modified to eliminate any relief based on the first hiring event. The Court first concluded that the City preserved both arguments identified by the Supreme Court. Since the City preserved its argument that the charge was untimely with respect to the first hiring event, and since the Supreme Court concluded that it was untimely, the Court reversed the District Court with respect to any relief arising from that event. Although the Court concluded that the City preserved its argument that the plaintiffs failed to prove any particular disparate impact, the Court rejected the argument on its merits. First, the City had conceded that the 89 cut-off had a disparate impact. Because each hiring event was a random selection from the well-qualified pool, each event resulted in the same disparate impact as the list as a whole. The Court rejected the City's argument that since it could treat the original creation of the pool as legal (because of the delayed charge), then each use of the pool was legal. In a disparate impact case, which does not require evidence of discriminatory intent during the charging period, the use of the test can be unlawful even if the original creation of the highly qualified pool was not.

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CARTER v. AMC (May 13, 2011)

Jackson Square Properties owns the Riverstone Apartments in Bolingbrook Illinois. AMC, LLC managed the building on its behalf. AMC brought suit in state court to evict tenant Geaneice Carter. Although AMC prevailed at the trial court level, the appellate court reversed on the ground that AMC failed to give proper notice. One judge on the panel also concluded that AMC violated the Fair Debt Collection Practices Act. Carter brought suit in federal court seeking damages for AMC's violation of the Act. Judge Gettleman (N.D. Ill.) dismissed the complaint on the ground that AMC was not a "debt collector" under the Act because it collected money owed to itself. Carter appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes affirmed. The Court rejected Carter's position that AMC's violation of the Act was established in state court. Not only is the opinion of one judge on a three-judge panel not enough to resolve an issue, but even the one judge who expressed an opinion acknowledged that the resolution of that issue was not necessary for the court's decision. Collateral estoppel applies only when an issue is necessarily decided. The Court then pointed out an incorrect factual assumption made by both the state court and the district court. Both assumed that AMC was the lessor. In fact, it is clear that Jackson Square Properties is the lessor and AMC is its agent. AMC can therefore not escape liability under the Act as the lessor. But AMC can also escape liability if it is attempting to collect a debt it "obtained" from another and the debt was not in default when AMC obtained it. The Court noted that several courts of appeals have concluded that a mortgage loan servicer "obtains" the bank's debt. Although no court of appeals has considered the lessor situation, many district courts have and have concluded that a lease servicer "obtains" the debt when the lease is signed. The FTC staff has also concluded, albeit not in a regulation or advisory opinion, that a lease servicer "obtains" the debt when it becomes the agent. The agent is not a debt collector under the Act unless the rent was in arrears at that time. The Court therefore concluded that AMC obtained the debt when it acquired the authority to collect the rent. Since Carter was not in arrears at that time, AMC is not a debt collector under the Act.

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UNITED STATES OF AMERICA v. ROGAN (May 12, 2011)

After defrauding the Medicare and Medicaid programs and hiding his wealth, Peter Rogan fled the country. He left the United States with a $60 million judgment. The United States discovered a Georgia limited liability company in which Rogan had invested. It served the company, 410 Montgomery LLC, with a writ of garnishment. After liquidating and paying off secured creditors, Montgomery was left with approximately $4 million. The government wanted it all but Jerry and Diane Whitlow filed a claim for $175,000. Their claim is based on their one third interest in a company to which Montgomery owes $475,000. Judge Darrah (N.D. Ill.) concluded that federal law, which gives priority to writs of garnishment issued by the United States over later-issued writs, controls and denied the Whitlow's claims. The Whitlows appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes vacated and remanded. The Court rejected the government's position that § 3205 displaces state law when the United States issues a writ of garnishment. The section on which the government relies only establishes the priority of competing writs. If the Whitlows had a competing claim directly against Rogan's assets, for example, it would control. But that is not the case. The Court also noted that the statute only gives the government the power to issue a writ against Rogan's interest in Montgomery, not in Montgomery's actual assets. The statute also provides that state law dictates the treatment of co-owned property (like Montgomery?). The Court recognized that its conclusion left many unanswered state-law questions for the district court to deal with on remand.

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EVA'S BRIDAL LTD. v. HALANICK ENTERPRISES (May 10, 2011)

Forty-five years ago, Eva Sweis opened the first "Eva's Bridal" shop in Chicago. The business was quite successful, selling dresses for brides and bridesmaids. The business eventually passed to her daughter and son-in-law. They sold one of their "Eva's Bridal" shops in a Chicago suburb to Nayef Ghusein. Their agreement required a $75,000 annual payment for the right to use the name. The agreement did not require Ghusein to conduct his operations according to any particular guidelines. The agreement expired in 2002 but Ghusein continues to operate the store under the same name without paying an annual fee. Eva's Bridal brought suit pursuant to the Lanham Act. Judge Darrah (N.D. Ill.) dismissed the complaint, concluding that plaintiffs abandoned the mark when they allowed Ghusein to use it without exercising any control over the nature and quality of the business. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that plaintiffs concede that "naked licensing" (that is, licensing without exercising control over the business) results in the abandonment of a mark. Plaintiffs contend, however, that Ghusein uses the same high-quality designers that they used when they operated the store and that they therefore had no need to oversee the business. But the Court disagreed. Trademark law does not require a licensor to insist on high-quality -- only to insist on a consistent level of quality. The degree of control required of a licensor depends both on customer expectations and the nature of the business itself. The Court concluded that it was not necessary to decide how much control was enough for these plaintiffs because they exercised no control at all. The fact that they knew the identical dresses might be available at the shop says nothing about other aspects of a customer's experience. The district court was correct in finding the mark abandoned.

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FREEDOM FROM RELIGION FOUNDATION v. OBAMA (April 14, 2011)

Presidential proclamations inviting citizens to pray are as old as the country itself, dating back to George Washington. Congress enacted a statute in 1988 that calls on the President to issue an annual proclamation setting aside the first Thursday in May as a National Day of Prayer. President Barack Obama issued such a proclamation on April 30, 2010. Freedom From Religion Foundation filed suit against President Obama and his Press Secretary, alleging that the statute and the proclamations contravene the First Amendment. Judge Crabb (W.D. Wis.) agreed, concluding that the statute and the proclamation violated the First Amendment. She issued an injunction forbidding any further such proclamations. The President and his Press Secretary appeal.

In their opinion, Chief Judge Easterbrook and Circuit Judges Manion and Williams (concurring) vacated and remanded with instructions to dismiss. The Court first addressed plaintiffs’ standing and found it lacking. In order to establish standing, one must show injury, causation, and redressability. The statute itself imposes a duty only on the President. The plaintiffs do not have standing to object to a statute that imposes duties only on others. But the proclamation is addressed to all citizens, including the plaintiffs. The proclamation, however, imposes no duty -- it simply makes a request. Plaintiffs cannot show any injury caused by such a request. The Court cited the Supreme Court's decisions in Newdow and Valley Forge Christian College as controlling precedent.

Judge Williams concurred in a separate opinion. She distinguished Newdow, disagreed with what she thought was the majority's conclusion that a change in behavior is required for standing, noted a number of Supreme Court decisions on the merits where the standing injury is hard to distinguish from that of the Foundation, but ultimately concluded that Valley Forge precludes standing.

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BACK DOCTORS LTD. V. METROPOLITAN PROPERTY AND CASUALTY INSURANCE CO. (April 1, 2011)

Back Doctors Ltd., a medical service provider, believed that Metropolitan Property and Casualty Insurance Co. used software that resulted in medical providers being underpaid for their services. Back Doctors filed suit in Illinois state court, on behalf of a class, alleging that Metropolitan breached its contracts with its insurers and violated the Illinois Consumer Fraud and Deceptive Business Practices Act. The suit asks for $2.9 million in damages. Metropolitan removed the case to federal court pursuant to the Class Action Fairness Act. Back Doctors moved to remand on the ground that their $2.9 million demand did not meet CAFA’s $5 million amount in controversy requirement. Judge Reagan (S.D. Ill.) agreed, stating that removal is disfavored and that Metropolitan had not demonstrated a "reasonable probability" that the $5 million threshold had been met. Metropolitan petitioned to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans granted the petition, vacated the remand order, and remanded. The Court first noted that the Supreme Court, in St. Paul Mercury, established the “amount in controversy” test in 1938 -- the threshold is met unless plaintiff cannot possibly recover the jurisdictional minimum. The Court then recited some of the history of the Circuit’s "reasonable probability" test in reference to the amount in controversy. It arose in 1993 in Shaw in reference to a plaintiff's burden to prove jurisdictional facts by a preponderance of the evidence. But the amount in controversy is not a jurisdictional fact, like where a company is incorporated or headquartered. After several years of misapplication, the Court tried to clarify the phrase in 2005 in Brill. When that failed, the Court eliminated the phrase entirely in 2006 in Sadowski. The Court even circulated the Sadowski opinion pursuant to Circuit Rule 40(e) so that it had the effect of an en banc decision. Unfortunately, there is obviously still some confusion. Having established the correct test, the Court asked whether a $5 million recovery was possible. It concluded that it was because of the possibility of punitive damages. Back Doctors, although it has not specifically asked for punitive damages, may still recover them. They have not disavowed them, they have cited no Illinois case disallowing punitive damage coverage when it is not pleaded, and they have a fiduciary duty to other class members to maximize the class recovery. The Court added that Illinois does have a procedure whereby a plaintiff can cap its relief. Back Doctors has not taking advantage of the procedure. Since a $5 million recovery is possible, removal was appropriate.

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CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. GEORGIA-PACIFIC (March 29, 2011)

In the early 1990s, Georgia-Pacific contributed to the multiemployer Central States, Southeast and Southwest Areas Pension Fund on behalf of employees in three different divisions. In 1994 and 1995, it laid off workers in its wood-pulp division and stopped its contributions for that division. In 1997, the company laid off workers in its building division and ceased those contributions. Then, in 2004, the company sold its building-products division. The new owner began contributing to the Fund and posted a bond. The Fund claims that Georgia-Pacific owes approximately $5 million in withdrawal liability. Georgia-Pacific, on the other hand, asserts that it has no liability under ERISA § 1384 because it ceased operations "solely because" of an arms-length sale of assets to an unrelated party. The parties proceeded to arbitration, as required by the statute. The arbitrator ruled in Georgia-Pacific's favor. Judge Pallmeyer (N.D. Ill.) enforced the arbitrator's award. The Fund appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that withdrawal payments are necessary to ensure the continued viability of underfunded multiemployer plans. The purpose of § 1384 is to prevent a windfall to a plan. But what does "solely because" mean? The Court found no appellate court jurisprudence on that question. The Fund argued that the arms-length sale was not the sole cause for Georgia-Pacific no longer contributing to the Fund. It cited the earlier layoffs as additional contributors. The Court identified and elaborated on the problems created by the Fund’s approach and concluded that the proper statutory construction requires consideration only of the transaction at issue. If no withdrawal liability would have accrued to the seller had there been no sale, then no withdrawal liability should accrue to the seller when the sale does go through. The Court recognized an exception to this general rule if an employer manipulates its business planning to avoid withdrawal liability. Here, the arbitrator was asked to consider whether the three stages of Georgia-Pacific's fund withdrawal should be considered as one. The arbitrator concluded that each stage was independent. The Court found that factual conclusion adequately supported by the evidence.

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LEE v. COOK COUNTY (March 22, 2011)

Twelve African-American Cook County employees believed that the County discriminated against them on account of their race in making promotions. They filed a charge with the EEOC. The EEOC issued right-to-sue letters in March 2008. The employees brought suit pursuant to Title VII in May of 2008, well within the 90-day window. Judge Castillo (N.D. Ill.) did not think that the twelve plaintiffs belonged in the same suit. So, in a September 18 order, he dismissed the complaint without prejudice and gave each individual plaintiff 40 days within which to file an individual action. But three of the plaintiffs waited over seven months before filing their individual actions. Judge Kendall (N.D. Ill.) and Judge St. Eve (N.D. Ill.) dismissed the individual actions as untimely. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Posner affirmed -- and issued sanctions. The Court first pointed out that there was nothing improper about the original filing. Rule 20 only requires multiple plaintiffs to share a common question of law or fact, which we have here. It does not require that a common question predominate, as do the class action rules. The district court therefore erred when it dismissed the complaint. The plaintiffs should have appealed, but they did not. Instead, the plaintiffs waited several months, refiled, and appeal the dismissal of the refiled complaints. So the Court turned to the merits of the actual appeal and agreed with the district courts that refiled actions were untimely. First, the district court's order directing the plaintiffs to file individual actions within 40 days did not extend the statute of limitations or the EEOC filing window. Second, equitable tolling requires a litigant to pursue his rights diligently. Plaintiffs' lawyer did anything but. Third, the Court rejected plaintiffs' argument that the defendants either waived or waited too long to assert the limitations defense. Having resolved the merits of the case against the plaintiffs, the Court turned to their lawyer. It noted his "calamitous handling" of the case in the district court, the "sloppy performance" in the appellate court, his several procedural gaffes, his failure to file required pleadings, his grossly inadequate response to the Court’s order to show cause, and his numerous violations of the Circuit Rules. The Court reprimanded the attorney, fined him $5000, and ordered him to send a copy of the opinion to his clients.

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COMRIE v. IPSCO, INC. (February 18, 2011)

Ipsco, Inc. had an unfunded, supplemental pension plan for its top executives. The plan had a golden parachute provision under which an executive was eligible for benefits if he left the company's employ within two years of a change of control. John Comrie was an executive covered by the plan. He resigned shortly after Ipsco was acquired by a Swedish company. Under the plan, Comrie was entitled to 54% of his average annual compensation over the last five years of his employment. The plan specifically excludes a "bonus" from compensation. Comrie computed his benefits by excluding only that compensation that was specifically designated as a "bonus." The company, through the committee that administered the plan, computed his benefits by excluding all compensation that was linked to stock, even if it was not designated as a "bonus." Judge Darrah (N.D. Ill.) granted summary judgment to the defendants. He applied an arbitrary and capricious standard because the plan granted the committee interpretive discretion. Comrie appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Rovner affirmed. The Court agreed with the district court's deferential review. It rejected Comrie's argument that the committee had a conflict of interest. And it concluded, relying on Firestone, that a contract conferring interpretive discretion on an  administrator, whether or not an ERISA fiduciary, must be honored. In so holding, the Court criticized the Third (Goldstein) and Eighth (Craig) Circuits. Applying the deferential standard, the Court concluded that the committee's decision was not arbitrary or capricious. Although it found nothing in the plan's language or other relevant evidence that answer the question definitively, the Court applied a common "business world" understanding of the term. The amount of Comrie's stock-linked income varied from year to year and was discretionary -- that sounded enough like a bonus to the Court to support the committee’s decision.

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LOUDERMILK v. BEST PALLET CO. (February 18, 2011)

Kevin Loudermilk, an African-American male, worked as a laborer at the Best Pallet Co. He came to believe that the company treated its Hispanic employees more favorably. He claims that he complained without success. He even talked about filing an EEOC charge. One day, he took some pictures of his work area. A supervisor, Dan Lyons, directed him to stop. Loudermilk again voiced his concerns about the discriminatory work environment. Lyons told him to put it in writing. When Loudermilk handed Lyons his written complaint the next day, Lyons immediately fired him. Loudermilk brought suit under Title VII, alleging that Best Pallet fired him for opposing its discriminatory practices. Judge Reinhard (N.D. Ill.) granted summary judgment to Best Pallet. He concluded that Loudermilk's only evidence, the timing of his discharge vis-à-vis the written complaint, was insufficient to establish causation. Loudermilk appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Evans reversed and remanded. The Court rejected the district court's conclusion for several reasons. First, the court did not look at the evidence in the light most favorable to Loudermilk. Second, the several different reasons the company put forth for its actions (it told the EEOC that Loudermilk was let go as part of a reduction in force, it first told the court that Loudermilk resigned, and it later told the court that he was fired for taking pictures) could support an inference of pretext. Third, the Court rejected the notion that timing, by itself, can never support an inference of causation. It depends on the context. Here, the termination came immediately after a protected act. The Court concluded that the context could support a causation inference.

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BALTAZAR v. WARDEN (February 18, 2011)

Advanced Healthcare Associates hired chiropractor Kelly Baltazar in 2007. Within a very short period of time, Baltazar concluded that the AHA staff regularly submitted inflated bills to the federal government. Baltazar resigned and filed suit under the False Claims Act. Judge Norgle (N.D. Ill.) dismissed the suit on the ground that the allegations were based on already public disclosures. The court based its conclusion on several federal government reports that established "prevalent fraud" by chiropractors. Baltazar appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Wood reversed and remanded. The Court conceded that there had been numerous allegations of fraud with respect to chiropractors. In fact, the report relied upon by the district court concluded that over half of the claims reviewed for that particular study were inflated. But Baltazar's allegations were not based on the study or the report. They were based on her personal knowledge of the practices of AHA. In concluding that Baltazar could proceed with her suit, the Court noted that no appellate court has held that a report of widespread fraud in a particular industry forecloses a False Claims Act suit against every member of the industry.

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WHITELY v. MORAVEC (February 16, 2011)

Waste Reduction, Inc. laid off several workers at its Indiana facilities in 2006 and filed for bankruptcy. It paid the workers' wage claims through the bankruptcy proceedings but had insufficient assets to satisfy the statutory penalty claims. Former employees filed suit against the company's ten largest shareholders pursuant to New York (where Waste Reduction was incorporated) law imposing employer liability on shareholders in some circumstances. Then-Judge Hamilton (S.D. Ind.) concluded that the defendants were entitled to judgment but kept the case open until the bankruptcy court resolved the wage claims. Once no wage claims existed, the court entered judgment. The plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Rovner affirmed. The Court first rejected the plaintiffs' argument that the district court abused its discretion in not remanding the case to state court once it decided the federal ERISA issues. On removal, a federal court has discretion to resolve both the federal and state issues, which is what the court did here. The Court turned to the merits. Under New York law, the ten largest shareholders of privately held companies are jointly and severally liable for "debts, wages or salaries . . . for services performed." The Court seemed to hold that the plaintiffs could not cobble together both the Indiana late wage penalty statute and the New York investor liability statute to create a hybrid statute (likening it to a jackalope or griffin). It decided the case on narrower grounds, however. The New York statute only imposes liability for debts "for services performed." The Indiana statutory penalty is not a debt "for services."

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TINSLEY v. INTEGRITY FINANCIAL PARTNERS (February 11, 2011)

Integrity Financial Partners (IFP) is a debt collector and was trying to collect a debt from Christopher Tinsley. Tinsley retained a lawyer and had the lawyer send a letter to IFP advising them that Tinsley refused to pay the debt and had no assets. The lawyer further requested that all collection efforts cease and advised IFP to "direct all future communications to our office." When IFP called the lawyer and requested payment, Kinsley filed suit under the Fair Debt Collection Practices Act. Chief Judge Holderman (N.D. Ill.) granted summary judgment to the defendants. Tinsley appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Hamilton affirmed. The Court began with § 1692(c)(c) of the Act. That section prohibits any communication by a debt collector with the “consumer" when it is advised that the consumer refuses to pay the debt or asks for no further communication on the debt. Tinsley argues that the prohibition on communicating with the consumer applies equally to communicating with the consumers attorney, his agent. Tinsley relies on the section of the Act that defines "communication" as conveying information directly or indirectly. Surely, he argues, communication with one’s lawyer is an indirect communication to the client. The Court noted that Tinsley's argument had been accepted by at least one district court and had apparently not been considered at the appellate court level. Although expressing some attraction to the argument at a superficial level, the Court reconsidered after it put the section in context. For example, subsections (a) and (b) of the Act are written in such a way that they would make no sense if a consumer and his lawyer were interchangeable. Furthermore, the Court noted that it is unlikely that Congress intended to prohibit all communication with a consumer’s lawyer. Finally, the Act’s definition of consumer does not include lawyer. Taking the Act as a whole, together with its purposes, the Court concluded that IFP's communication with Tinsley's lawyer was not prohibited by the Act.

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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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CITY OF CHICAGO v. STUBHUB! (September 29, 2010)

The practice of "scalping" tickets, or selling them above face value, is generally illegal in Illinois. But there are exceptions. One is for an Internet auction site -- but only if it registers with the State, either collects and remits taxes or publishes a notice on its site advising the actual reseller of its tax obligations, and agrees to provide information about any reseller if requested by law enforcement or government official. StubHub! operates just such a site and complies with those requirements of Illinois law. It has chosen the "notice" alternative rather than the "collects and remits" alternative. The City of Chicago would rather have StubHub! collect the tax so it does not have to worry about whether each of thousands of resellers pay it – so it amended an ordinance requiring direct payment by StubHub!. The City filed suit seeking a declaration that StubHub! is responsible for the taxes. Judge Andersen (N.D. Ill.) dismissed the complaint on the ground that tickets are "tangible or personal property" and that, therefore, the Preemption Act prohibits a home-rule municipality from imposing the tax. Chicago appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Kanne certified a question to the Illinois Supreme Court. The Court first disposed of StubHub's arguments that federal law somehow barred the tax. First, the Communications Decency Act is simply irrelevant to the issue. Second, the Internet Tax Freedom Act prohibits “[m]ultiple or discriminatory taxes on electronic commerce.” The Chicago tax is neither. Turning back to state law, the Court recognized that an intermediate state court has concluded that a ticket is "tangible or personal property" (ironically, adopting a point argued by the City). A federal court sitting in diversity will frequently follow (even though not required to) an intermediate state court's ruling, if there is no reason to believe that the state Supreme Court would rule otherwise. Even if the ruling is erroneous, later state-court cases that address the same issue can correct the error. Here, however, the Court was concerned that the state Supreme Court might never be heard on the issue. Apparently, there are only two cases that address the issue. Both started in state court but were removed to federal court – and any future-filed case will likely be removable. The Court, therefore, requested the Illinois Supreme Court to advise "whether municipalities may require electronic intermediaries to collect and remit amusement taxes on resold tickets."

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WILSON v. O'BRIEN (September 3, 2010)

Robert Wilson was convicted of attempted murder in state court. After that conviction was set aside, Wilson brought suit against the City of Chicago and others pursuant to § 1983. During discovery, the defendants attempted to depose Tyler Nims. While a law student, Nims had assisted Wilson with his defense. Nims asserted the attorney work-product privilege and refused to answer questions. After the district court ordered Nims to answer, he complied. Wilson (the party) and Nims (the nonparty) both appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Hamilton dismissed for lack of jurisdiction. The appeal raised interesting issues under the Cohen collateral-order doctrine in light of Mohawk Industries. After a short discussion of those issues, the Court tabled them. A necessary premise in considering an interlocutory appeal from an order concerning the disclosure of privileged information is that the person ordered to disclose has refused to so. Here, Nims complied with the district court's order -- his matter is moot. Likewise, with respect to Wilson, there is nothing the Court can do to protect the confidentiality of the already disclosed information. Wilson's opportunity to challenge the district court's decision will come after a final decision in the district court.

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BODUM USA v. LA CAFETIERE, INC. (September 2, 2010)

In 1991, Bodum Holding purchased the stock of a French company whose principal product was a french-press coffeemaker sold under the name “Chambord.” One of the principal investors in the French company also owned Household, a British company that sold a very similar looking French-press coffeemaker under the “La Cafetiere” name. The parties negotiated over Household's ability to continue selling its coffeemaker after the sale. An early draft of the sales agreement allowed it to sell the La Cafetiere only in England. The later, signed version allowed it to sell the La Cafetiere anywhere in the world except France. In 2006, Household began distributing the La Cafetiere in the United States. Bodum filed suit under state and federal law. Judge Kennelly (N.D. Ill.) granted summary judgment to Household. Bodum appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner (concurring) and Wood (concurring) affirmed. The only issue the Court addressed was the meaning of the contract, which was governed by French law. Although FRCP 44.1 allows the use of expert testimony as an aid to the interpretation of foreign law, the Court criticized the practice. Instead, it noted its preference for treatises. Here, the Court relied on the plain language of the contract and its "straightforward" negotiation history in concluding that Household was within its rights to sell its product in the United States. It rejected Bodum's argument that a provision in the French Civil Code required a trial to determine the actual intent of the parties.

Judge Posner agreed with the disposition on the merits but wrote a separate concurrence even more critical than Chief Judge Easterbrook of the practice of using experts to aid the court in foreign law interpretation. In his judgment, courts should rarely rely on expert testimony for the meaning of foreign law. Judge Posner has expressed this view in the past, as well (see his opinion in Sunstar, Inc. v. Alberto-Culver Co. - and my post).

Judge Wood also agreed with the disposition of the case on the merits and also wrote separately on the subject of Rule 44.1. Judge Wood, however, disagreed with the harsh criticism from her colleagues. In her judgment, experts are frequently necessary to ensure that a district court judge completely understands the nuances of foreign law.

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BADGER CATHOLIC, INC. v. WALSH (September 1, 2010)

Badger Catholic is an approved and registered student organization at the University of Wisconsin. As such, it is eligible to apply for and receive money from the University. The monies come from a University account that is funded by a fee charged to every university student. The Supreme Court approved the University's practice (University of Wisconsin v. Southworth) because it was a neutral, forum-creating program that distributed funds without regard to viewpoint. The University rejected Badger Catholic's request for funds for six different programs. The denial was based on the University's practice of not funding programs that involve "worship, proselytizing, or religious instruction." Judge Adelman (W.D. Wis.) concluded that funding such activity would not violate the Establishment Clause and entered a declaratory judgment requiring the University to fund Badger Catholic on the same basis it funds other organizations. The University appeals -- Badger Catholic cross-appeals.

In their opinion, Chief Judge Easterbrook and Judges Evans and Williams (dissenting) affirmed. The Court cited two Supreme Court cases (Widmar and Rosenberger) in support of its conclusion that the district court was correct in its decision that funding the programs would not violate the Establishment Clause. The University also argued that it was permitted to withhold the funds even if the funding did not violate the First Amendment. The Court distinguished the University's reliance on Locke (which permitted a state to exclude ministry study from its scholarship program). The decision in Locke was a form of government speech -- here, the University created a public forum for student speech. Having created the public forum, it must not discriminate among the speakers within the scope of the forum. The University must fund the rejected programs if similar, secular programs are funded. The Court also rejected Badger Catholic's cross-appeal: a) damages are not available against the University because it is not a "person" under § 1983, b) damages are not available against the individual defendants because of official immunity, c) damages are not available under state law because Badger Catholic failed to comply with statutory notice requirements, and d) the district court did not abuse its discretion in issuing a declaratory judgment instead of an injunction.

Judge Williams dissented. She phrased the issue as whether the University's rejection of Badger Catholic's programs was disallowing a particular view on a permissible topic (viewpoint discrimination -- unconstitutional) or disallowing any view on a particular topic (content discrimination -- constitutional). Her conclusion was that the University was engaged in the latter. The Constitution allows it to decide not to fund purely religious activity. It gets around any problem in defining the scope of that restriction by allowing the student organizations themselves to identify purely religious activities.

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PALOIAN v. LASALLE BANK (August 27, 2010)

James Desnick purchased the Doctors Hospital of Hyde Park in 1992, after he left the practice of medicine amid charges of misconduct. The Hospital remained open until 2000. Two loans are at issue in this appeal. In March of 1997, MMA Funding (also owned by Desnick) obtained a $25 million line of credit from Daiwa, which it then made available to the Hospital. In return, the Hospital transferred its accounts receivable to MMA, and MMA gave Daiwa a security interest in them. In August of the same year, Nomura Asset Capital Corporation loaned $50 million to HPCH (which owned the building and land -- and was also owned by Desnick). HPCH made the $50 million available to the Hospital. In return, the Hospital paid additional rent to HPCH and HPCH gave Nomura a security interest in the rent. The Nomura loan was later securitized, sold to a third party, and transferred to a trust. LaSalle National Bank is the trustee. Cash-flow problems led to the Hospital's bankruptcy filing. The trustee in bankruptcy sought to recover some of the payments on the loans as fraudulent conveyances. The bankruptcy court concluded that the Hospital was insolvent at least by August of 1997, that the increased rent was in reality debt service, and that the Nomura loan repayments were fraudulent conveyances. The bankruptcy court also concluded that repayments on both loans after July of 1998 were outside the bankruptcy because they were made with MMA's assets, not the Hospital's. Judge Pallmeyer (N.D. Ill.) affirmed the bankruptcy court. Both trustees appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Tinder vacated and remanded. The Court first addressed LaSalle's argument that it is not an "initial transferee" under the Code and that the payments cannot therefore be recovered. Although the Code does not define "initial transferee," the Court relied on its own earlier decision in Bonded Financial Services to conclude that LaSalle was the real recipient of the transfer since it was the legal owner of the trust's assets. Next, the Court addressed whether the Hospital was insolvent in August of 1977. The trustee in bankruptcy cannot avoid the transfers unless it was. The bankruptcy court used a discounted-cash-flow analysis (which showed that the Hospital was comfortably solvent), but then subtracted $18.5 million that a later audit determined to be the amount of Medicare overpayments, and then reduced its future income calculation by 40% because it was a Subchapter S corporation. The court reasoned that a tax-paying buyer would reduce the purchase price because of tax consequences. The Court found both downward adjustments to be in error. With respect to the Medicare overpayments, the Court stated that the balance sheet should have included an estimate (as of 1997) of the Hospital's liability on the Medicare audit and an estimate of how much Desnick would contribute. Here, Desnick paid the entire $18.5 million. Since the court used hindsight to include the $18.5 million of liability, it should have used the same hindsight to eliminate the liability because of Desnick's contribution. With respect to the 40% reduction, the Court concluded that the discount could only be justified by the illiquidity of the Hospital's shares or the potential that a tax-paying entity bought the hospital. But neither of those is relevant to the Hospital's solvency. The Court therefore concluded that the Hospital was solvent in August of 1997 and that the following months’ debt service was not a fraudulent conveyance. The Court noted that, on remand, the bankruptcy court may be asked to determine whether the Hospital was insolvent at some other time after August of 1997 but before it filed for bankruptcy. Finally, the Court addressed whether Desnick and Daiwa succeeded in creating a "bankruptcy-remote vehicle" in MMA. If they did, Daiwa could rely on the assets of MMA without fear of bankruptcy implications if the Hospital failed. Such an arrangement requires that the separate entity (here, MMA) be independent and separate and observe corporate formalities. The Court noted that those attributes appear to be missing here. MMA was not independent, it was not separate, it had little existence outside the loan documents, and did not even actually purchase the accounts receivable. The Court did allow for the possibility that a record could be developed otherwise on remand -- if, in fact, the bankruptcy court determines that the Hospital was insolvent at some time before filing.

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SCHLEICHER v. WENDT (August 20, 2010)

Conseco was a large financial services company traded on the New York Stock Exchange. It filed for bankruptcy in 2002 and successfully reorganized. This securities-fraud claim was filed against Conseco managers who are alleged to have made false statements prior to the bankruptcy. Then-District Judge Hamilton (S.D. Ind.) certified a class. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner affirmed. The Court began by noting that securities-fraud claims are regularly litigated as class actions. Common questions generally include falsehood, intent, causation, and materiality. Individual questions, such as an individual investor's extent of loss, can frequently be addressed mechanically. Prior to 1988, defendants fought class certification by focusing on the reliance element. But the Supreme Court that year, in Basic, concluded that the stock price conveys the same public information to each investor if the stock is frequently traded in an efficient market. The Basic doctrine, called fraud on the market, replaced the reliance element. Here, the defendants argued that the fraud on the market doctrine does not apply because, notwithstanding the alleged false statements, Conseco's stock was falling during the relevant period. The Court found that fact to be irrelevant and concluded that the case met the Basic requirements. The Court also rejected defendants’ arguments that certification was improper because the class included short sellers and because the court failed to determine falsity and materiality. On the former, the Court noted that both long and short sellers are affected by news related to the value of a stock. The fact that short sellers may not realize a loss as a result of a false statement affects computation of damages, not the propriety of a class. On the latter, the Court stated that falsity and materiality are elements to be decide on the merits – not at the class certification stage. In doing so, it specifically expressed its disagreement with the Fifth Circuit’s decision in Oscar Private Equity that reads Basic to allow a tightening of class certification requirements. Congress has spoken on the issue in the Private Securities Litigation Reform Act and the Securities Litigation Uniform Standards Act. The Court declined to legislate other changes.

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BAUER v. SHEPARD (August 20, 2010)

Indiana Right to Life, Inc. sends questionnaires to judicial candidates for election or retention. The questionnaires seek information on the recipient's views on abortion. The organization filed suit challenging certain provisions of Indiana's Code of Judicial Conduct relating to the political activities of judges and candidates for judicial office. The suit was dismissed for lack of standing. In the present suit, the organization is joined by a sitting judge and a candidate for judicial office. The plaintiffs challenge five provisions of the code, four current and one which was in effect in 2008: a) the current and former rules forbidding "commitments that are inconsistent with the impartial performance of judicial office," b) the rule requiring recusal of a judge if he or she made a public statement "that commits or appears to commit the judge to reach a particular result," c) the rule limiting the partisan political activities of judges, and d) limits on fundraising. Judge Springmann (N.D. Ind.) concluded that the challenge to the earlier version of the code was moot and concluded that the challenged sections of the current code were all constitutional. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Manion and Evans affirmed as modified. The Court first concluded that the individual plaintiffs had standing because of the threat to prosecute and the probability of future injury. Next, the Court addressed the challenge to the no-longer current section of the code. It disagreed with the lower court's finding of mootness. The code's amendment in 2009 did not eliminate the possibility of a prosecution for an earlier violation. Nevertheless, given the significant number of unlikely steps that must occur before such a prosecution, the Court concluded that the matter was not ripe for adjudication. The Court then addressed the merits of the challenge to the four current provisions in light of the Supreme Court's decision in White and the Court's own decision earlier this year in Siefert. The Court held: 1) The solicitation prohibition is fundamentally the same as the one the Court upheld in Siefert. It is not facially unconstitutional and the state should be given an opportunity to make exceptions as appropriate. 2) Although Siefert did not address political leadership roles and speechmaking, it did uphold a prohibition on public political endorsements. Its analysis led the Court to conclude that the preservation of public confidence in the judiciary is enough of a compelling interest to uphold the leadership and speechmaking prohibitions of the Indiana code. White dealt with limitations on the judge's own positions -- it did not affect precedent dealing with a judge's impact on the other elections. 3) With respect to the "commits" provision, the Court distinguished between the questionnaire, which asked for a candidate's views on certain topics and which the Supreme Court said was allowable, and the code provision, which only prohibits commitments "inconsistent with the impartial performance" of one's office. The Court did recognize some vagueness in the language. However, instead of identifying hypothetical situations in which the state may act too broadly, the Court chose to assume that the state would act reasonably and continue to refine the meaning of the provision through the administrative processes. 4) Finally, with respect to the recusal provision, the Court found no constitutional issue at all. The recusal clause does not address a judge's role as candidate -- it addresses a judge's role as public employee. Under Garcetti, a judge's speech in his role as a judge is not protected speech. Furthermore, a state has every right to allocate a court case to a judge whose impartiality is not open to debate.

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SUPERL SEQUOIA LIMITED v. THE CARLSON CO. (August 11, 2010)

In preparation for a Martha Stewart promotion, Macy's solicited bids for the furniture required to create the promotion settings and its installation. Carlson Company, a Wisconsin furniture manufacturer, wanted to bid but lacked sufficient capacity. Superl Sequoia, a Hong Kong manufacturer, and Carlson agreed to work together. Sequoia agreed to provide most of the furniture -- Carlson agreed to install the furniture and to fix or replace furniture, as necessary. They also agreed to split the profits 50-50. Sequoia quoted a $3.4 million price to Carlson. Carlson marked up the quote, added its anticipated cost, and submitted a $5 million bid. Macy's accepted the bid, was satisfied with the work, and paid the invoice. Carlson only paid Sequoia $2 million, however, claiming that it spent more on replacements and repairs for late or substandard furniture than it had anticipated. Sequoia brought an action for breach of contract. Judge Crabb (W.D. Wis.) concluded that Sequoia breached the contract because of late and substandard deliveries and that Carlson could recover its replacement and repair costs. She then held a bench trial to calculate those costs. She disregarded the $3.4 million quote, instead demanding that Sequoia provide evidence of its actual costs. At trial, the court first concluded that Sequoia's costs were $2.2 million and that Carlson's were $.4 million -- entitling each to approximately $1.15 million in profit. But the court then added that Carlson was entitled to an additional $1.16 million to cover its extra expenses and entered judgment for Carlson for approximately $10,000. Sequoia appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Kanne, and District Judge Kennelly vacated and remanded. The Court first concluded that the district court's calculations of damage amounts were not clearly erroneous. On the other hand, the Court questioned two legal decisions of the trial court. The first was the court's allowance of the $1.16 million in replacement and repair costs to Carlson, which was calculated to include overhead and profit. Although the agreement of the parties was documented in a group of e-mails without a formal contract, the Court concluded that the parties agreed that only Carlson's out-of-pocket repair and replacement costs were recoverable. The second legal decision addressed by the Court was the district court's treatment of the $3.4 million bid. Again interpreting a number of e-mails documenting the agreement with some difficulty, the Court disagreed with that treatment. First, the Court noted that Carlson accepted the quote long before the relevant e-mail exchange. The quote was the basis upon which Sequoia joined the venture -- Carlson cannot retroactively ignore it. Second, the quote was given as a fixed amount -- both the floor and the ceiling on Sequoia's costs. The later e-mails should not be viewed as fundamentally changing the structure of the deal. The Court remanded with instructions to the district court to recalculate the judgment.

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JAY FRANCO & SONS v. FRANEK (August 11, 2010)

In the late 1980s, Clemens Franek sought and received trademark registration status for his "radical" round beach towel. Almost 20 years later, Franek brought suit under the Lanham Act against Jay Franco & Sons for its unauthorized sale of round beach towels. Franco counterclaimed to invalidate the mark. Judge Dow (N.D. Ill.) granted summary judgment to Franco. Franek appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans affirmed. The Court first noted that Franek's long continuous use of the mark made it "uncontestable" – so Franek did not have to show that the mark had acquired a secondary meaning. But the mark is still susceptible to challenge on whether it is merely functional. Patent law provides protection to functional designs -- trademark law does not. The Supreme Court defined functional in TrafFix Devices as "essential to the use or purpose of the device or when it affects the cost or quality of the device." One way of identifying whether a design is useful is with reference to existing utility patents. The Court noted that the round towel’s design was quite similar to a portion of a utility patent granted for a towel-bag. The existence of the patent, under TrafFix, is strong evidence of the functionality of a circular towel. In addition, the Court noted that the Franek's own advertisements focused on the functionality of the shape -- allowing sunbathers to change position without moving the towel. The Court also rejected Franek’s argument that the design was a fashion statement. In most instances, fashion is function. What Franek wants is the exclusive use of a basic round design for a beach towel. Although a distinctive, irregular design may qualify for trademark protection, the simple circle does not.

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SPECIALIZED SEATING v. GREENWICH INDUSTRIES (August 11, 2010)

Greenwich Industries has been manufacturing standard folding chairs for more than 80 years. In 1999, it applied for a trademark registration of one particular design. The Patent and Trademark Office issued its registration in 2004. Specialized Seating also manufactures folding chairs and has one model that is almost identical to Greenwich's trademarked chair. Specialized brought suit under the Lanham Act for a declaratory judgment that its chair did not violate Greenwich's rights -- Greenwich counterclaimed for injunctive relief. Judge Holderman (N.D. Ill.) ruled in favor of Specialized, concluding both that the chair's design was functional and that Greenwich had defrauded the Patent and Trademark Office. Greenwich appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans affirmed. The Court applied the clear error test to the district court's finding of functionality. Although functionality happened to be the ultimate issue in the case, it is still a fact specific conclusion subject to the clear error standard of review. The Court noted the difference between patent protection and trademark protection. A purely functional design such as Greenwich's chair can be, and in fact here was, protected for a time with a patent. When the patent expires, however, that protection cannot be extended through trademark application. It is true that certain functional products can receive trademark protection, but only when a nonfunctional aspect of its design creates a distinctive appearance. All of the aspects of Greenwich's chair design are functional -- none contribute to a distinctive appearance. Having affirmed the district court's finding of functionality, the Court did not address its finding of fraud.

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OWNER-OPERATOR INDEPENDENT DRIVERS ASS’N v. MAYFLOWER TRANSIT (August 9, 2010)

Mayflower Transit is in the business of transporting household goods from one location to another. It frequently provides this service by leasing equipment. Mayflower pays the truck's owner-operator a per-mile fee. Federal regulations require Mayflower's trucks to be insured. Mayflower acquires insurance and deducts its cost from the fees it pays the owner-operators. A group of drivers and their trade association filed suit against Mayflower under 49 U.S.C. § 14704(a)(2), contending that Mayflower’s practice violates a federal regulation that prohibits a motor carrier from requiring its drivers to purchase any product or service from it as a condition of its lease. Judge Baker (S.D. Ind.) dismissed some claims on statute of limitations grounds and dismissed the insurance claims on the ground that the deduction did not violate the regulation. The owner-operators appeal.

In their opinion, Chief Judge Easterbrook and Judges Williams and Tinder affirmed and remanded. First addressing the limitations issue, the Court noted that § 14705(c) contains a two-year statute of limitations applicable to the administrative proceedings referenced in § 14704(b) but does not mention § 14704(a)(2). The district court applied the two-year statute anyway, concluding that a scrivener's error was responsible for the omission. The Court disagreed. It conceded that the text of the statute was inconsistent with the legislative history and that Congress may have intended a two-year limitations period. Nevertheless, the unambiguous text governs. Since the statute therefore contains no internal statute of limitations, the court concluded that the residual four-year limitations period applies. On the merits, the Court agreed with the district court. The federal regulation requires a motor carrier to purchase insurance -- the regulation is silent on who pays for it. Furthermore, the regulation relied on by the owner-operators only prohibits the lessor from requiring the purchase of a good or service from it. Since Mayflower does not and cannot sell insurance, the insurance deduction cannot be the purchase of a good or service from Mayflower. Finally, another section of the same regulation requires a lessor to specify in its lease the amount of any insurance chargeback. Although the plaintiffs suggest a convoluted reading of that section, the plain meaning of the section is inconsistent with the notion that Mayflower's charge for insurance is prohibited.

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ROBINSON v. CITY OF HARVEY (August 6, 2010)

In 2002, Archie Robinson prevailed in his claim against the City of Harvey and police officer Manuel Escalante. A jury awarded him $25,000 in compensatory damages (jointly and severally) and $250,000 in punitive damages against Escalante. Two years later, the district court ordered the defendants to pay approximately $500,000 in attorneys' fees. Escalante settled. After the Seventh Circuit affirmed the fee award, the City paid the compensatory damages and the attorneys’ fees. Almost a year later, Robinson sought additional fees for: a) defending against Escalante's post-verdict motions, b) defending against Escalante's attempts to stay enforcement of the judgment, c) prosecuting the original motion for fees, and d) prosecuting the appeal. Judge Lefkow (N.D. Ill.) awarded an additional $277,000. The City appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder reversed. The Court identified two distinct problems with the district court's award. First, the first two items related to effort undertaken by Robinson with respect to the punitive damage award against Escalante. The City is not, and never was, liable for that award. The City is therefore not responsible for any of those fees incurred. The second problem with the award is its timing. The first appeal, from the 2004 fee award, presumed that the $500,000 fee award was complete and final. In fact, if it was not, the Court would not have had jurisdiction to consider it and would have dismissed the appeal. Robinson represented at the time that the fee award was final. He cannot have it otherwise. The Court did note that the last item, fees incurred in defending the 2004 fee award on appeal, could constitute a separate request not affected by the finality of the district court's ruling. But a party has only 90 days within which to seek such an award. Robinson waited much longer without good reason and without seeking an extension. Although the district court accepted his untimely request, the Court concluded that it had no good reason to do so.

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CASANOVA v. AMERICAN AIRLINES (August 5, 2010)

Bruce Casanova, an American Airlines baggage handler, reported an on-the-job injury to his supervisor toward the end of his shift on a Monday. The injury, however, is alleged to have occurred the preceding Friday. His supervisor sent him to the medical center and reported his injury to the firm that handles workers compensation claims for the airline. The medical staff instructed Casanova not to use his arm pending further examination. His supervisor was suspicious: Casanova claimed to be in too much pain to debrief her on the injury but had waited 72 hours to even report it and had worked most of a full shift in the meantime. She also noticed him using his left hand, apparently without pain. The airline decided to put him under surveillance. He was observed using his left arm frequently. American demanded an "Article 29F" hearing, an employer inquiry proceeding pursuant to the collective bargaining agreement. Casanova failed to cooperate at the hearing, answering "I don't recall" most questions. He did affirmatively deny any use of his left arm after the injury. Casanova also refused to provide a written explanation of the injury. American fired Casanova for lying and insubordination. Casanova brought suit, claiming that his discharge was in retaliation for his claim for workers' compensation benefits. At trial, a jury awarded over $1 million (mostly punitive damages). Judge Guzmán (N.D. Ill.) denied American's post trial motions. American appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes reversed. The Court concluded that the district court erred in finding that Casanova prevailed because the injury (and his implied future claim for workers' compensation benefits) was a but-for cause of the later discharge. The injury claim was, in fact, a necessary condition of Casanova's discharge -- but it was not a sufficient condition. The record is clear that American fired Casanova for his lying and insubordination. Casanova did not even try to offer evidence suggesting that American's reason was pretextual. Instead, he attacked American’s use of the Article 29F procedure. Without any material dispute on an absence of pretext, America was entitled to judgment as a matter of law.

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FUSION CAPITAL FUND II v. HAM (August 2, 2010)

In 2004, Sutura, Inc. was a privately-held medical device manufacturer in search of new equity capital. Millenium Holding Group was an insolvent publicly-held company with no business and few assets. The companies entered into a merger agreement under which Sutura was to merge into the Millenium shell followed by a name change of the shell back to Sutura (known as "going public by the back door"). Fusion Capital Fund II agreed to provide equity capital for the new enterprise. Fusion agreed with Millennium to invest $15 million, conditioned on the consummation of the merger. When the merger was not consummated by October of 2004, Fusion withdrew. Sutura terminated the merger agreement. Millennium brought suit against Fusion in Nevada for tortious interference with the merger agreement. Fusion prevailed. Fusion then brought suit in Illinois for its attorney's fees in defending the Nevada suit. Fusion added as defendants Richard Ham and Carla Aufdenkamp, Millennium's sole board members and majority shareholders. Judge Shadur (N.D. Ill.) found for Fusion and awarded $1.2 million. He also found the shareholders personally liable. Ham and Aufdenkamp appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Kanne reversed. Under Nevada law, a shareholder or director is not liable for a debt of the corporation unless it acts as its alter ego. The statutory alter ego test has three parts: a) the person must influence and govern the corporation (Ham and Aufdenkamp concede this point), b) there must be a unity of interest (the Court found this point amply supported), and c) adherence to the corporate fiction would "sanction fraud or promote a manifest injustice." It is on this third point that the Court found error in the district court's analysis. There was no fraud. As the Court put it, Fusion always knew that Millennium was a "husk without any corn inside." In fact, it was Millennium's financial position that made the merger attractive. The more advisable course of action for Fusion would have been to get a personal guarantee from the shareholders -- and they did not even ask for one. The district court relied on the questionable financial maneuverings between Millennium and Ham and Aufdenkamp. But none of that made any difference to Fusion.

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ALLIANCE 3PL CORP. v. NEW PRIME, INC. (August 2, 2010)

Loders Croklaan USA produces fats and oils used in the food industry. Until 2003, the company dealt directly with trucking companies to transport its product to its customers. One of the companies with whom it had such a relationship was New Prime, Inc. In 2003, Loders retained Alliance 3PL Corp., a transportation management services company, to manage its transportation needs. In turn, Alliance entered into a contract with New Prime to continue transporting Loder's products. The contract contained a back-solicitation clause which prohibited New Prime from soliciting any “traffic” from a company which it first learned about through Alliance. When Loders' contract with Alliance ended, New Prime submitted a successful bid directly to Loders. Alliance brought suit against New Prime for breach of the back-solicitation clause. A jury awarded Alliance $2.2 million in damages. Judge Bucklo (N.D. Ill.) denied New Prime's Rule 50 and 59 motions. New Prime appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Rovner reversed. The basic facts were not in dispute. The parties agreed that New Prime had a relationship with Loders before being retained by Alliance and that the amount of business available to New Prime increased during the Alliance era. The Court noted that the dispute arose regarding the meaning of the word "traffic" in the back-solicitation clause. The district court judge concluded that the word was ambiguous and allowed the jury to decide which meeting to apply. New Prime relied on the ordinary definition of the word in conjunction with the purpose behind the back-solicitation clause to conclude that, since it knew of the company and its general transportation needs before its contract with Alliance, it did not breach the clause. The Court found this position supported by Illinois restrictive covenant law. The Court added that a party that wants to divert from the normal definition of the term can do so with either parol or trade usage evidence -- and Alliance did neither. There is therefore no record support for Alliance's position that "traffic" should be defined as "amount of traffic" in order to hold New Prime liable.

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SPOERLE v. KRAFT FOODS GLOBAL (August 2, 2010)

Kraft Foods operates an Oscar Mayer plant in Madison, Wisconsin. It requires its employees to wear boots, hardhats, smocks, and hairnets for safety and cleanliness. Obviously, it takes a short time each day to put on and take off this equipment. The Fair Labor Standards Act provides that an employer must pay an employee for the time spent "donning and doffing." However, the Act allows for the non-payment of that time if a collective bargaining agreement so provides. The Collective Bargaining Agreement between Kraft and its union does so provide and Kraft does not compensate its employees for the activity. Several employees brought suit against Kraft. They alleged that Wisconsin's state law also requires "donning and doffing" payment and does not have a collective bargaining agreement exception. Judge Crabb (W.D. Wis.) agreed and entered judgment in plaintiffs' favor. Kraft appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Evans affirmed. The Court first focused on the plain language of § 203(o) of the Act, which is the definition of “Hours Worked” and contains the collective bargaining agreement exception. Section 203(o) specifically limits its application to §§ 206 and 207 of the Act -- the federal provisions relating to minimum wage and overtime. The Court turned its attention to § 218(a) of the Act, which specifically allows a state to specify a higher minimum wage or a shorter maximum workweek than that provided in the Act. Since Wisconsin could establish a higher minimum hourly wage, the Court reasoned that it would be "senseless" to preclude it from dictating what work hours should be compensated. The Court therefore concluded that the Act did not prevent a state from requiring the donning and doffing payment. Finally, the Court also concluded that federal labor law did not preempt the Wisconsin law since it does not interfere with the collective bargaining process – it simply sets forth a requirement that an employer must meet.

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BOARD OF TRUSTEES v. ORGANON TEKNIKA CORP. (July 27, 2010)

The University of Illinois licenses certain intellectual property rights to Organon Teknika for the manufacture of a cancer drug. In return, the University collects a royalty. Because the royalty depends on Organon's revenue and because Organon is allowed to sell to its affiliated companies, the license allows the University to challenge the royalty rate. In the case of a challenge, an arbitrator is asked to determine whether Organon is receiving the equivalent of an arms-length negotiated rate. The University did challenge the rate in 2006. After receiving evidence, the arbitrator concluded that the rate was appropriate and issued a final award closing the proceedings without modifying the rate. He also sent the parties his final bill. In the final two sentences of his award, he explicitly "reserve[d] the right" to amend his findings if new evidence became available. The University neither sought judicial review nor reconsideration under the Federal Arbitration Act. Instead, after six months, it asked the arbitrator to reconsider. When Organon refused to consent to any further proceedings, the University filed suit to compel the resumption of arbitration. Judge Guzmán (N.D. Ill.) dismissed the suit, though on a ground neither party had requested -- that the arbitrator had never issued a final award. Organon appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Hamilton vacated and remanded. At first blush, the Court questioned its appellate jurisdiction. In the court below, the University had requested an order compelling Organon to arbitrate and Organon had objected to such an order. The court dismissed the suit without granting the University its requested relief. Nevertheless, the University did not appeal -- but Organon did. On the face of it, it appears that Organon prevailed. A prevailing party cannot appeal the judgment even if it disagrees with the content or rationale of the opinion. Upon deeper analysis, however, the Court appreciated that Organon was in fact attacking the judgment. What it wanted was finality -- a dismissal with prejudice -- rather than the dismissal without prejudice entered by the court. Satisfied with its jurisdiction, the Court addressed the merits. It had little difficulty in concluding that the district court erred in concluding that the arbitration was still pending. The arbitrator resolved the dispute, referred to the award as his final decision, and sent his final bill. The reservation in the final two sentences, in the Court's opinion, was nothing more than the arbitration equivalent of Rule 60(b)(2). Just as Rule 60(b)(2) does not stand in the way of the finality of a judgment, neither does the arbitrator's reservation. Under the Federal Arbitration Act, the University had 90 days within which to present new evidence. It did not do so. The arbitration is over. 

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PRIME EAGLE GROUP LTD. v. STEEL DYNAMICS (July 27, 2010)

Prime Eagle Group Ltd. is the assignee of a Thai company that built a steel mill in Thailand in the 1990s. During the mill’s construction, the company ran into difficulty and sought the assistance of Steel Dynamics, an expert in the field. Early on, with Steel Dynamic’s help, the venture was successful and profitable. In the late 1990s, however, when the region was in a recession and steel prices were deflated, Steel Dynamics decided to withdraw. It reported to company management and investors that the mill had design flaws and corrective action would cost $100 million. The company's president did not agree and reported his position to the board of directors. He was fired and investors soon pulled out. Lightning put the mill out of commission in December of 1998. Several years later, after the company came out of reorganization, it commissioned an engineering study. The study concluded that the original design was sound and the mill has operated successfully since -- without an expenditure of $100 million. Prime Eagle brought suit against Steel Dynamics for fraud. Judge Moody (N.D. Ind.) concluded that the suit was untimely under Indiana’s six-year statute of limitations and entered judgment for Steel Dynamics. Prime Eagle appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed. Prime Eagle concedes that the suit was filed ten years after the alleged fraud but asserts that the claim did not accrue until the company learned the results of the 2002 report. The Court noted that the only real issue is whether the president's knowledge is imputed to the company. The president wrote a lengthy and comprehensive letter to the board detailing his disagreement with Steel Dynamics. He certainly knew enough at that time for the company to commission an investigation. Instead of doing so, however, the board fired him and did nothing for four years. The general rule is that an employee's knowledge is imputed to the corporation. Only two exceptions to the rule exist, neither of which applies here. The Court rejected Prime Eagle's argument that a third exception -- for an employee who has lost the confidence of the board -- applies and noted that a federal court is the wrong place to even argue for a new exception to state law. Finally, the Court rejected Prime Eagle's equitable tolling argument. Under equitable tolling, Prime Eagle is required to act diligently after the tolling event (its insolvency) terminates. Here, they failed to do so. In fact, they delayed at least four years before taking any action.

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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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PORTIS v. CITY OF CHICAGO (July 23, 2010)

The City of Chicago arrests thousands of individuals each year for crimes punishable only by monetary fines. These crimes include disorderly conduct, peddling, and minor traffic offenses, among others. The police procedure after such arrests is to confirm the identity of the individual, the existence of probable cause, and that the individual is not wanted for a more serious offense. At that point in the process, an individual is entitled to be released on a personal-recognizance bond. All that remains is the bond’s processing and approval and the return of any personal belongings that were taken upon the arrest. The individual is then released. A number of persons who were subjected to this process brought a class action against the City. They allege that if the period of time between the entitlement to release and the actual release exceeds two hours, the confinement is unreasonable and in violation of the Fourth Amendment. Judge Gettleman (N.D. Ill.) agreed and certified the question for appeal. The City appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans accepted the appeal -- and reversed and remanded. The Court compared the district court's ruling with the Supreme Court's decision in McLaughlin. In that case, the Supreme Court adopted a 48-hour test for the reasonableness of the period between arrest and presentation to a magistrate. That test differed in two ways from the district court's test: first, it looked at the entire process between arrest and presentation rather than one phase of the process -- and second, the 48-hour test was a presumption rather than a bright line rule. McLaughlin specifically rejected the adoption of arbitrary bright lines by courts -- only a legislature should venture there. The reasonableness of a detention should be decided as a whole -- not with relation to its component parts -- and should be decided individually -- not as a class. So not only did the Court find error in the lower court's decision on the merits, it also directed the district court to decertify the class. The named plaintiffs may still proceed individually with their claims that their detention was unreasonable.

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FM INDUSTRIES v. CITICORP CREDIT SERVICES (July 22, 2010)

FM Industries brought a copyright infringement suit against Citicorp Credit Services. Judge Conlon (N.D. Ill.) found material disputes with respect to FM’s prospective relief and Citicorp’s ongoing infringement and set the case for trial. FM's lawyer, Wayne Rhine, was late in his obligation to prepare a draft pretrial order. When he did so, it was "egregiously noncompliant." Despite extensions of time and cooperation from the defendants, Rhine never fixed the problem. Eventually, the court dismissed the case for want of prosecution. The district court awarded approximately $750,000 in attorneys’ fees to the defendants under the copyright statute. The court also found that Rhine and his co-counsel William McGrath had vexatiously multiplied the proceedings under § 1927 and imposed a joint and several sanction of $35,000. FM, Rhine, and McGrath appeal.

In their opinion, Chief Judge Easterbrook and Judges Wood and Tinder affirmed in part and reversed in part. The Court first noted that any argument on the merits was irrelevant. The only reason the case did not go to trial was the dismissal sanction. On that issue, the Court had no difficulty in finding it proper. The non-compliant pretrial order with was, in the Court's words, the "straw that broke the camel's back." The Court recited the delays, the warnings, the absurd damage demands, the missed time limits, the overreaching discovery demands -- the list went on. The dismissal sanctioned was permissible under Rule 16 and was proportionate to the conduct. With respect to the statutory award of fees, the Court stated that a prevailing defendant is presumed entitled to fees under the statute and FM presented no reason to reverse that presumption. Finally, with respect to § 1927 sanctions, the Court concluded that Rhine's litigation behavior was vexatious and deserving of sanctions. McGrath, however, presented a different story. Although he did file an appearance and signed five pleadings, he was not accused of any direct misdeeds. He cannot be sanctioned under § 1927 for the misdeeds of his co-counsel or even for his failure to prevent them. The Court reversed the award of sanctions against McGrath.

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BRANDT v. VILLAGE OF WINNETKA (July 20, 2010)

William Brandt, Jr. resides in Winnetka, Illinois and is active politically. He has hosted several receptions for candidates and officeholders at his home. In the aftermath of such an event in 1996 for President Clinton, Winnetka passed an ordinance that requires event sponsors to pay for the “special services” required by the events. Special services includes things like additional police presence and traffic control measures. Notwithstanding the ordinance, Winnetka has not asked Brandt to pay for any special services occasioned by the several events he has sponsored since its passage. The village has invoked the ordinance on three occasions -- one for President Bush and two for Laura Bush. Political committees, rather than the individual sponsor, paid for at least two of those events. Brandt filed suit pursuant to § 1983, seeking a declaratory judgment that the ordinance violates the First Amendment. He alleged that it "chilled" his willingness to sponsor events and that it engaged in viewpoint discrimination on the theory that more controversial candidates would require more special services. Judge Dow (N.D. Ill) dismissed the complaint on the grounds that Brandt lacked standing. Brandt appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder affirmed as modified. The Court noted that the district court dismissed for lack of standing because Brandt had not established an injury -- but also mentioned its belief that the issue was not ripe and that it may be an improper case to exercise the court's discretion to issue a declaratory judgment. The Court concluded that the district court was in error when it found an absence of standing. Standing can be found when there is an actual or impending injury, even though that injury may be small and not absolutely certain. Here, the Court found sufficient injury (as well as causation and redressability) to support standing. The Court concurred with the district court, however, in its decision not to exercise its discretion to issue a declaratory judgment. Brandt does not challenge the ordinance on its face -- only as applied. The record does not show that the ordinance will be applied in a discriminatory fashion or that it has had any effect on speech. Such an abstract record does not lend itself to a constitutional adjudication at this time.

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HANSON v. DANE COUNTY (June 15, 2010)

The 911 line was dead when the Dane County dispatcher picked it up. The dispatcher called the number back but there was no answer. The police were alerted. When the police arrived at the home of David and Karen Hanson, Karen asked them to leave. She advised the police that she had called 911 but could not remember why -- she also said that she and David had been arguing but that she could not remember why. The officers continued their investigation. They questioned David and Karen separately and also questioned the couple's 15 and 13-year-old daughters. David ultimately admitted that Karen had called 911 after he "bumped" her during a heated argument. The police arrested David and charged him with domestic battery. The charges were dropped when Karen refused to cooperate. David Hanson filed suit pursuant to § 1983 alleging violations of the Fourth, Fifth, and Fourteenth Amendments. Judge Crabb (W.D. Wis.) granted summary judgment to the defendants. Hanson appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Manion affirmed. The Court first rejected Hanson's argument that the police entry was without probable cause in violation of the Fourth Amendment. The Court concluded that an unanswered 911 callback itself provides probable cause. The Court also rejected the argument that the officers violated the Fourth Amendment by remaining on the premises after Karen asked them to leave. Her demeanor and her obviously false statements that she could not remember why she called or why she and David were fighting support the reasonableness of the officers' actions. The officers also acted reasonably in questioning the children given David and Karen's lack of cooperation. In addition, any substantive due process rights would belong to the children, who are not parties directly or indirectly. Finally, the Court rejected David's claim that his separate questioning amounted to a custodial interrogation and that the officers "violated" Miranda by not delivering its warnings. Although the district court had resolved the issue on qualified immunity grounds by concluding that a reasonable officer would not have found the interrogation "custodial," the Court found that analysis unnecessary. The Miranda doctrine governs the use in court of incriminatory statements. It does not prohibit a compelled statement nor does it allow a claim of damages for the failure to provide the warning.

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WALLACE v. MCGLOTHAN (MAY 26, 2010)

Tracey Wallace had trouble reading small print and driving at night. She decided to have surgery so that she would not need to wear contacts or glasses. She went to Dr. McGlothan for LASIK surgery. Unfortunately, the surgery was not successful. A complication arose first during the procedure on her right eye. Notwithstanding the complication, Dr. McGlothan nevertheless performed the same procedure on her left eye -- with the same result. Wallace sought treatment from Drs. Connor and Price. They treated her for years, with some improvement. She continues, however, to suffer the effects of the unsuccessful surgery. The Indiana Medical Review Panel concluded that McGlothan was negligent but only with respect to the left eye. Wallace and her husband brought suit. Judge McKinney (S.D. Ind.) granted partial summary judgment. He relied on the Panel’s opinion in finding that McGlothan violated the standard of care with respect to her left eye but was not liable for any damage to her right. A jury trial was held on damages. The defendant moved for judgment as a matter of law at the close of the evidence, arguing that Wallace failed to prove the permanence of the injury. After a jury verdict of approximately $700,000, McGlothan renewed his motion with respect to the permanence of the injury and also addressed an allegedly undisclosed pre-existing condition. The court denied the motion. McGlothan appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Tinder affirmed. First, the Court rejected Wallace's argument that McGlothan waived the pre-existing condition argument by failing to include it in his pre-verdict motion. The Court agreed that McGlothan improperly included in his Rule 50 (b) motion an argument that was not included in his pre-verdict motion. Although the plaintiffs could have objected, they did not. They therefore waived their waiver argument. The Court then proceeded to uphold the decision on the merits. First, it concluded that the objections to the expert testimony were forfeited. Second, it found the testimony of the experts sufficient for the jury to conclude that the damage was permanent. Third, it concluded that the testimony of the experts was sufficient for the jury to find a causal link between the surgery and Wallace's condition, unrelated to a pre-existing condition. Fourth, it concluded that the evidence linking the condition to the left eye as opposed to the right eye, although sparse, was sufficient. Finally, the Court rejected defendant's complaints about discovery abuse and perjury.

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UNITED STATES v. APRIA HEALTHCARE GROUP (May 19, 2010)

Two qui tam actions were filed against Apria Healthcare Group in the late 1990s, accusing Apria of fraudulently billing the Medicare and Medicaid programs from 1995-98. Years later, but while those actions were still pending, Christine Chovanec filed this action, similarly alleging fraudulent billing by Apria from 2002-04 in Illinois. Judge Kocoras (N.D. Ill.) dismissed the action with prejudice pursuant to 31 U.S.C. § 3730(b)(5), which provides that no person may bring a "related action" based on the facts of a pending action brought by another person. Four days later, the earlier cases were settled. Chovanec moved for reconsideration. The court denied. Chovanec appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Sykes vacated and remanded. The Court first held that the statute means what it says -- that no person "may . . . bring a related action based on the facts” of another pending action. Any action thus brought must be dismissed, rather than stayed. The Court next addressed whether Chovanec's action was a "related action." It aligned itself with other courts of appeals and concluded that the statute's reference to "facts" meant the material facts in the original relator's complaint. The Court explained that it was the complaints in those cases, not the settlement, that provided the material facts. Those complaints alleged an ongoing national fraud. Therefore, even though Chovanec's allegations referred to later years and a specific office, they were related to the original allegations. Concluding, therefore, that the statute required the dismissal of her complaint, the Court nevertheless vacated the judgment. Now that the original complaints are no longer pending, nothing in § 3730(b)(5) prevents her from refiling. The district court should have dismissed without prejudice.

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DIRECTV v. BARCZEWSKI (May 13, 2010)

David Barczewski and Jonathan Wisler purchased electronic equipment that was actually marketed for its ability to intercept DirecTV signals. They both also participated in discussion groups whose purpose was to exchange advice about intercepting and decrypting those signals. When DirecTV sued them, a jury found that Wisler had intercepted signals without authorization for 435 days and that Barczewski had distributed four unauthorized decryption devices. The court imposed a statutory penalty of $44,000 against Barczewski and $43,500 against Wisler. Barczewski and Wisler appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed in part and vacated and remanded in part. The Court first summarily rejected defendants' contentions that DirecTV did not have a private right of action under 18 U.S.C. § 2520 or 47 U.S.C. § 605. It noted that every court of appeals that had considered the questions agreed. It also quickly disposed of their argument that an exception in the statute for an "aeronautical communication system" applied because a DirecTV witness at trial stated that DirecTV was such a system. Whatever the witness meant, the Court interpreted the statute and concluded that DirecTV is not the kind of system referred to in the exception. Finally, the Court addressed the issue of the penalty. Although it affirmed the calculation of Barczewski’s penalty, it vacated the award of the penalty against Wisler. The statute provides that a court "may” assess the greater of a) the sum of the plaintiff's damages and the violator's profits, or b) the greater of $100 per day of violation or $10,000. In 1990, the Court held, in Rodgers v. Wood, that the imposition of the highest penalty under that calculation was mandatory. Part of the Rodgers rationale was that Congress changed the statute and replaced “shall” with “may” without any explanation for a change from mandatory to discretionary. Rodgers was also the first Court of Appeals decision interpreting that section. Since Rodgers, each of the four other circuits that have addressed the question has disagreed – and concluded that the language is permissive. Upon a careful review of the statutory language, the rationale of Rodgers, the analyses from the other circuits, and the policy considerations, the Court overruled Rodgers' holding that the maximum penalty was mandatory. It vacated the award and remanded to the district court.

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IN RE: ALTHEIMER & GRAY (April 15, 2010)

Mark Berens practiced law at Altheimer & Gray, a Chicago-based international law firm. He was a capital partner at the firm -- he invested capital, he voted, he was listed on the articles of partnership, and his compensation was based on the firm's profits. He qualified as a partner under the definition of the Uniform Partnership Act. In 1999, he withdrew from the partnership and signed a contract pursuant to which he gave up any right to the profits of the firm. In lieu, he agreed to a salary. Under the practice at the law firm at the time, he was still called a "partner." In 2003, the firm, which had been in existence for almost 100 years, entered involuntary bankruptcy. The firm and its creditors agreed to a liquidation plan under which any firm debt to a "partner" was subordinated to other debts. The plan defined "partner" to include both the firm's "unit partners" and the "non-unit partners." Within the firm, "unit partners" were those who shared in the profits. "Non-unit partners" were the salaried, or contract, partners. Berens filed a claim for over $300,000 that he claimed was owed to him by the firm. When the trustee failed to pay the claim, Berens filed a motion in the bankruptcy court for relief. The bankruptcy court denied the motion and the district court affirmed. Berens appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Hamilton affirmed. The question presented to the Court was whether Berens was a "partner" under the liquidation plan and therefore subordinate to other creditors. The Court agreed with Berens that his position with the firm after 1999 did not qualify as a "partner" under the Uniform Partnership Act. The plan of dissolution, however, had its own definition of "partner" and did not adopt or refer to the definition contained in the Uniform Partnership Act. There is nothing in the bankruptcy law that requires a dissolution plan to adopt any particular definition of a term. In fact, as Chief Judge Easterbrook pointed out in his opinion, the plan could have used a word from a nonsense poem (can you say “borogrove”?) instead of “partner” as long as it defined it properly. Berens was clearly a partner as that term is defined in the dissolution plan -- therefore his claim is subordinate to the claims of other creditors.

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FIRST BANK v. DJL PROPERTIES (March 24, 2010)

First Bank filed two lawsuits against DJL Properties in state court. In both cases, DJL filed class-action counterclaims. First Bank removed both cases to federal court, pursuant to the provisions of the Class Action Fairness Act. Both district court judges to whom the cases were assigned remanded. First Bank sought leave to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams granted the petitions for leave to appeal but affirmed the district courts. The Court stated that the law is settled, possibly for over 150 years, that a state court plaintiff cannot remove the case to federal court, even if that plaintiff becomes a counter-defendant. The 4th and 9th Circuits have applied that long-standing general rule to the Class Action Fairness Act. The Court agreed. The Act specifically refers to the general removal sections of the statute where "defendant" is limited to a defendant, it uses the phrase "any defendant," and it uses a word that has a long-established meaning. The Court specifically noted the value in giving words used by Congress their standard meaning. Congress could have easily expanded the removal rights in the Act to counter-defendants. It did not. 

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BERGQUIST v. MANN BRACKEN, LLP (January 26, 2010)

Sandra Bergquist owed money to the bank that issued her a credit card. The bank retained the law firm of Mann Bracken to collect the debt. The firm arbitrated the dispute before the National Arbitration Forum, as provided in the credit card agreement. The bank prevailed at the arbitration and a state court entered judgment enforcing the arbitration award. Bergquist was suspicious of the connection between Mann Bracken and the National Arbitration Forum. She asked the state court to set aside its judgment enforcing the award. It did so and dismissed the case with prejudice. She also filed a class-action on behalf of all persons who were pursued by Mann Bracken and had their claims arbitrated before the National Arbitration Forum. The defendants removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded, concluding that the Rooker-Feldman doctrine precluded federal jurisdiction of the claim. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner vacated and remanded. The Court first rejected the argument that CAFA trumps Rooker-Feldman. Although CAFA expands federal jurisdiction with respect to class actions, it does not change the Rooker-Feldman limitation on collateral attacks of state court decisions. The Court concluded, however, that the Rooker-Feldman doctrine had no application in the case. First, although the district court recognized the inapplicability of the doctrine to Bergquist's individual claim (because the state case had been dismissed with prejudice), it nevertheless remanded because Bergquist sought relief on behalf of others who had lost in state court. The Court found this to be error. The district court was not allowed to remand the entire case because some portion of it did not belong in federal court. A federal court must exercise the jurisdiction that does exist. Second, it was not apparent to the Court that any claim need be remanded. The Court identified three possible subclasses: those who won in state court, those who lost in state court, and those who neither won nor lost. The class can be defined to eliminate those who lost in state court, the only persons in the class with a Rooker-Feldman problem. The Court remanded for a determination of whether the jurisdictional requirements were met under that revised class definition.

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AVILA v. PAPPAS (January 4, 2010)

Maria Avila was already in trouble. Her employer, the Cook County Treasurer's Office, was about to conduct a disciplinary hearing. Avila made it worse when she told one of her coworkers that she might "go postal." Her coworker advised her superiors. They not only added a disciplinary count for the implied threat and fired her but alerted the authorities. Avila was criminally prosecuted. The prosecutor charged a felony, taking the position that one of the targets of Avila's threat was a public official. Avila was acquitted, the court holding that he was not a public official. Avila filed suit against her superiors pursuant to §1983, alleging both constitutional violations and state law malicious prosecution. Although the court dismissed the federal counts, it retained the state law claim under supplemental jurisdiction and resolved it on the merits in favor of the defendants. Avila appeals the judgment on the state law claim.

In their opinion, Chief Judge Easterbrook and Judges Wood and Tinder vacated and remanded with instructions to dismiss for want of jurisdiction. The Court first addressed its jurisdiction. Although Avila asserted four federal law theories, the Court emphasized that a federal claim must have substance to create a basis for federal jurisdiction. The Court concluded that the federal claims -- substantive due process, conspiracy, failure to train, and equal protection -- were frivolous. The Court principally relied on the Supreme Court's decision in Albright and the Court's own decision in Newsome, holding that malicious prosecution does not violate the Constitution if state law recognizes it as a tort (which Illinois does).

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SHERWOOD v. MARQUETTE TRANSPORTATION CO. (November 23, 2009)

Bluegrass Marine employs Michael Sherwood as a deckhand on one of its Mississippi River vessels. Sherwood alleged that he was injured during his employment. He brought suit under the Jones Act. Bluegrass sought a stay in favor of arbitration, invoking a clause in Sherwood's employment contract that required all disputes to be arbitrated under the Illinois Uniform Arbitration Act. The court denied the stay, concluding that the Federal Arbitration Act (which does not apply to seamen) preempted the Illinois Act. Bluegrass appealed.

In their opinion, Chief Judge Easterbrook and Judges Evans and Williams dismissed for want of jurisdiction. The Court noted that Bluegrass relied on § 16 of the FAA, which authorizes interlocutory review of a refusal to stay an action under § 3 of the FAA. The Court concluded that § 16 could not provide a basis for jurisdiction since the FAA does not apply to seamen and because Bluegrass never sought or was denied a stay under § 3 of the Act. The Court also rejected Bluegrass' reliance on both the collateral order doctrine and § 1292 (as the denial of an injunction) as bases for an appeal. Although the Court denied the appeal, it did express its doubt regarding the correctness of the district court's preemption conclusion.

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HOOSIER ENERGY RURAL ELECTRIC COOPERATIVE v. JOHN HANCOCK LIFE INSURANCE COMPANY (September 17, 2009)

Hoosier Energy Rural Electric Cooperative and John Hancock Life Insurance Company entered into a lease-leaseback of a Power Plant in order to take advantage of excess depreciation deductions held by Hoosier. Because the transaction exposed John Hancock to substantial financial risks, Hoosier arranged with Ambac Assurance Corporation to pay to Hancock $120 million upon the occurrence of certain events. One of those events was a reduction in Ambac’s credit rating. If that occurred, Hoosier had 60 days to replace the surety. It did occur. Even with an extension, Hoosier did not replace the surety. John Hancock demanded performance. Ambac was ready and able to perform but Hoosier filed suit and obtained a temporary restraining order and a preliminary injunction. Ambac’s performance would require Hoosier to cover the payment, which would drive Hoosier into bankruptcy. John Hancock appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Wood affirmed. The Court began with the requirements for equitable relief: irreparable injury, a plausible claim on the merits and the balance of equities. The Court accepted the district court’s finding of irreparable injury and proceeded to address the merits. The district court had found merit in two Hoosier arguments: that the transaction was illegal and must be unwound and that Hoosier is at least temporarily excused under the doctrine of "temporary commercial impracticability." The Court disagreed with respect to the first prong. Whether or not the IRS allows the parties to take advantage of the intended tax consequences, the Court believed that the parties were still bound by their contractual obligations. With respect to the second prong, the Court noted that New York courts do not recognize "temporary commercial impracticability." Although they do recognize the defense of impossibility, they take a dim view of it and do not excuse performance when the "impossibility" is the result of financial hardship. If, as Hancock claims, Hoosier had the option to replace the surety, the Court did not believe that an impossibility defense would stand. If, however, as Hoosier claims, it had a duty to replace the surety, an impossibility defense might prevail. The Court found enough uncertainty in the contract and the facts surrounding Hoosier's ability or inability to replace the surety that it concluded that the district court was correct with respect to Hoosier's prospect of prevailing. Finally, the Court required the district court to re-examine the amount of the injunction bonds to protect John Hancock and urged the district court to allow Hancock to realize its surety if Hoosier is not able to replace the surety within a few months.

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NEW ALBANY DVD v. CITY OF NEW ALBANY (September 10, 2009)

New Albany DVD set out to operate an adult entertainment business in New Albany, Indiana. It purchased property, obtained licenses and renovated a building. Although the land was properly zoned, the City refused to conduct a final inspection, a requirement for occupancy. Instead, it imposed a moratorium on new adult businesses. During the moratorium, it changed the zoning rules to prohibit the operation of an adult business on the property selected by New Albany DVD. The new rules prohibit the operation of an adult business within 1000 feet of a church or any property zoned residential. The site is within 200 feet of both. New Albany DVD brought suit under § 1983, alleging a violation of the First Amendment. The district court held that the ordinance was likely unconstitutional and issued an injunction allowing New Albany DVD to open. The City appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner remanded. The Court first disagreed with the lower court's rationale -- that the regulation was not narrowly tailored for its purpose -- for issuing the injunction. Although Alameda Books and other cases require narrow tailoring of regulations of adult businesses, the Court concluded that the dispersal regulation at issue had often been used and sustained after challenge. The Court went on, however, to agree with the court’s result under a different rationale. It noted that the studies relied on by the City focused on live-entertainment businesses. New Albany DVD offers take-home materials only. The City’s attempts to overcome this hurdle by offering anecdotal evidence of increased litter and theft was rejected as well. The Court agreed that the City might be able to use those justifications, but concluded that sufficient evidence did not exist in the record. Finally, the Court referred, as it did in its earlier Annex Books opinion (see post), to Justice Kennedy’s opinion in Alameda Books as a guide to the evidence required under the intermediate scrutiny standard.

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GOTHAM HOLDINGS v. HEALTH GRADES (September 3, 2009)

Gotham Holdings and Health Grades are parties to litigation pending in New York. In that proceeding, Health Grades maintained that an award in its earlier arbitration with Hewitt Associates supported its litigation position. Although it tendered the award and related documents in the litigation, Gotham asked for more. Health Grades refused. Gotham subpoenaed the documents directly from Hewitt in Illinois. The court ordered Hewitt to turn over the documents, which it is willing to do. Health Grades appeals.

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The Court noted that Health Grade's refusal was based on a confidentiality provision in the arbitration. The first ground on which it affirmed was a specific section of the confidentiality agreement that allowed documents to be produced in response to a subpoena. Additionally, even if the agreement did not so provide, the Court held that the parties to the arbitration could only bind themselves. They cannot, by agreement, limit a third party's access to the documents.

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ANNEX BOOKS, INC. v. CITY OF INDIANAPOLIS (September 3, 2009)

The City of Indianapolis regulates “adult entertainment businesses”. The regulations include a license requirement, store lighting requirements, Sunday closings and restricted weekday hours. Prior to 2003, any retail establishment that received 50% of its revenue or devoted 50% of its space to adult materials was considered such a business. In 2003, Indianapolis reduced the 50% threshold to 25%. Four businesses that fell within that new definition brought suit, challenging both the licensing procedures and the definition. The district court rejected the challenges to both. The businesses appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Rovner affirmed in part and reversed in part. The Court adopted the district court's opinion with respect to the licensing challenge. It went on to address the challenge to the definition. The Court noted that Indianapolis conceded that the law is subject to "intermediate" scrutiny in that the plaintiffs are booksellers. Indianapolis relies on the reduction of crime and other negative effects of adult businesses. The Court identified a problem, however. Indianapolis relied on studies accepted by the Supreme Court and on a study it conducted years earlier that associated higher crime with adult businesses. But the studies all dealt with the effect of regulations dispersing adult businesses. The Indianapolis ordinance does not deal with dispersal -- it deals with store hours and store conditions. The studies also dealt with businesses that offered live entertainment, unlike three of the four plaintiffs in the case. The Court concluded that an evidentiary hearing was required. At the hearing, the City must present relevant evidence supporting its restrictions on adult businesses that satisfies the intermediate standard of the Supreme Court's decision in Alameda Books. The Court referred to Justice Kennedy's opinion, reflecting the holding of Alameda Books, as instructive. In order to meet the constitutional challenge, said Justice Kennedy, an ordinance must suppress the secondary effects of the regulated business yet leave the availability and amount of speech "substantially intact."

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FAIRLEY v. ANDREWS (August 20, 2009

Fairley and Gackowski were employed as guards at the Cook County Jail. Both complained about their fellow guards' mistreatment of prisoners. After one particularly brutal incident, the affected prisoners filed suit. Fairley and Gackowski infuriated some of the other guards by their willingness to testify truthfully about their knowledge of the incident. They were both harassed and taunted, verbally and physically. Ultimately, they both quit. Fairley testified in a deposition a few weeks before he quit. Gackowski gave a deposition after he quit. Both testified at the trial, which resulted in a defense verdict. Fairley and Gackowski brought an action under § 1983, alleging that the defendants violated their free speech rights by assaulting them as a result of their willingness to report the abuse of prisoners and to testify truthfully. Shortly before trial, the district court ordered the exclusion of all evidence of events that occurred prior to the plaintiffs’ depositions. The judge reasoned that anything that occurred prior to their speech could not be considered as retaliation or punishment for that speech. Without that evidence, the guards accepted a dismissal. Fairley and Gackowski appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Wood affirmed in part and reversed in part. The Court first clarified its jurisdiction, given the guards' acceptance of a dismissal after the court’s evidentiary ruling. The Court concluded that a party can decide that further pursuit of its case in the trial court is hopeless and accept a judgment against it in order to appeal. On the merits, the Court addressed both of plaintiffs' theories: that the defendants punished them for reporting defendants’ misconduct and that defendants taunted them to prevent their future testimony. On the first theory, the Court concluded that their claim was barred by Garcetti. Garcetti provides that the First Amendment does not protect speech that is part of one's job. Here, one guard’s report about another guard's conduct is part of the job. But Garcetti applies as against an employer - here, the defendants are coworkers. The Court concluded that it did not have to reach the coworker issue. The guards' Monell argument that the jail had a policy against reporting any guard misconduct linked the employer's liability and the coworker's liability. On the second theory of liability, however, the Court concluded that Garcetti did not control. The speech at issue in the second theory was the guards' testimony in the prisoners' trial. That speech is not part of the job. The Court concluded that Fairley and Gackowski could recover against a defendant who made threats that were designed to discourage their trial testimony.

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INDIANA PROTECTION AND ADVOCACY SERVICES v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION (July 28, 2009)

The State of Indiana receives federal funds under programs designed to assist those with disabilities and mental illnesses. In return, it must have a system to protect and advocate for their rights. The Indiana Protection and Advocacy Services ("Services") is the system the state created for that purpose. As such, it is entitled to investigate incidents of abuse and neglect and to see patient records, unless the patient has a legal guardian in charge of his or her interests. When a mentally disabled patient died at a state hospital, Services investigated. The hospital refused to turn over the patient's medical records. Services filed suit in federal court, naming the hospital and the state agency in charge of its operation, Indiana Family and Social Services Administration. The district court found that the hospital was required to turn over the records. The defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall vacated and remanded. The Court never reached the merits. It noted that neither statute in question created an express right of action for a state system such as Services. If there is a private right of action to enforce the provisions of the statutes, it comes from § 1983. The Court added, however, that Services is a state actor. It is therefore not a "person" under § 1983 and cannot sue a state agency. The Court remanded with instructions to dismiss for lack of jurisdiction.

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FRY v. EXELON CORPORATION CASH BALANCE PENSION PLAN (July 2, 2009)
 

Exelon Corporation created a defined-benefit pension plan in 2002. In order to be able to distribute the balance of employee's account as if the Plan were a defined-contribution plan, Exelon defined "normal retirement age" to be five years after commencement of employment. Exelon was thus able to avoid what it considered to be a problem with ERISA's treatment of defined-benefit plans (Congress fixed the problem in ERISA in 2006). Thomas Fry retired from Exelon in 2003 at age 55. Fry sued the Plan when it turned over only his account balance rather than his balance plus investment credits through age 65. The lower court held that the Plan satisfied ERISA. Fry appeals.

In their opinion, Chief Judge Easterbrook and Judges Evans and Sykes affirmed. The Court examined the statute. ERISA defines "normal retirement age" as either a) when an employee attains normal retirement age under the plan, or b) the later of i) age 65 or ii) the employee’s fifth anniversary in the Plan. The Court agreed with Exelon that its approach was allowable under the first prong of the definition. It concluded that ERISA did not require a retirement age to be actuarially accurate. Under the statute, an age is a "normal retirement age" if the plan says it is.

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UNITED STATES v. ROLLS-ROYCE CORPORATION (June 30, 2009)

Curtis Lusby was an engineer at Rolls-Royce Corp. He became suspicious that the company was falsely certifying that one of its aircraft engines met government specifications so he informed his superiors. He claims that the company fired him for doing so. He brought suit under the False Claims Act, alleging that the company punished him for preparing to bring an action under the statute. The parties jointly dismissed the suit in 2003. However, two months earlier, Lusby had filed a qui tam action under seal. The court dismissed the action for failure to plead fraud with particularity and because of the claim preclusion effect of the earlier lawsuit. Lusby appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Wood affirmed in part and reversed in part. The Court first addressed claim preclusion. It noted its 2007 decision in Cole. In Cole, the Court held that a person who did not prevail on a Title VII claim cannot later bring both a personal and qui tam claim under the False Claims Act. Here, however, Lusby disputes one of the elements of claim preclusion -- that the cases involve the same parties (Cole conceded the issue). The Court noted that the United States is not an actual party to a qui tam suit unless it intervenes. It is, however, the real party in interest. In addition, the Court identified several procedural requirements for qui tam litigation that would make it very difficult to bring a personal claim in the same suit. The Court concluded that the resolution of an employee's personal suit does not preclude a later qui tam suit. With respect to the particularity issue, the Court stated that the complaint contained quite specific allegations of fraud. It rejected Rolls-Royce's argument that a specific allegation of the details of the invoices was required. The Court did affirmed the lower court with respect to Lusby's allegations that Rolls-Royce committed fraud during the earlier settlement negotiations.

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KROLNIK v. THE PRUDENTIAL INSURANCE COMPANY (June 29, 2009)

Although Paul Krolnik ceased working because of a hernia and back pain, he failed to return to work because, at least in part, of his depression. Prudential paid him long-term disability benefits for two years. It stopped the benefit stream after two years because the policy at issue caps the benefit at two years if the inability to work is caused, even in part, by a mental illness (including depression). Krolnik brought an ERISA suit against Prudential. The court below barred all discovery on medical issues, struck Krolnik's medical affidavits and granted summary judgment to Prudential.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Williams affirmed in part and vacated and remanded in part. The parties agreed that the benefit plan at issue did not confirm operational discretion on its administrator. The Court stated that the court below therefore was required to make an independent decision on Krolnik’s benefit entitlement. Here, instead, the judge simply looked at the administrative record and disallowed any new evidence. The court erred in barring discovery, refusing to take new evidence, declining to resolve disputed facts and simply relying on the administrative record. As an aside, the Court criticized the use of the phrase "de novo review" in these circumstances since the court is not reviewing anything but reaching an independent decision. The Court affirmed the district court with respect to a subrogation issue and otherwise vacated and remanded.

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FREEDOM MORTGAGE CORPORATION v. BURNHAM MORTGAGE, INC. (June 23, 2009)

Freedom Mortgage Corp. loaned money to property purchasers arranged by broker Burnham Mortgage, Inc. After the purchasers defaulted, Freedom purchased the properties with credit bids at auction, was awarded default judgments for the difference between the purchase prices and the outstanding debts, and later resold the properties for less than their purchase price. Freedom claims (in its complaint, taken as true) that Burnham conducted a scam whereby it arranged to over-appraise properties, sponsor sham sales, and have Freedom lend money on its inflated understanding of the properties’ purchase prices. Title insurers indemnified Freedom for damages caused by a failure to close according to Freedom's specifications. Freedom sued Burnham and the insurers for fraud and under RICO. The court first ruled that, under Illinois law, Freedom was not able to recover from a third party any damages on the theory that the property was worth less than it had been purchased for at the foreclosure sale. The court later ruled that Freedom's claim was barred by claim preclusion and by the Rooker-Feldman doctrine. Freedom appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans reversed and remanded. The Court quickly disposed of the Rooker-Feldman argument. Rooker-Feldman comes into play when a party complains about a state court judgment in federal court. Here, Freedom is the prevailing state court party in the foreclosure action, and is complaining about injuries from conduct that predated the state court proceedings. Rooker-Feldman does not apply. With respect to claim preclusion, the Court noted that Illinois does not require all claims to be made in a single action - only if they relate to the same transaction. Since Illinois treats claims on a guarantee, for example, as a separate transaction, the Court concluded that it would allow a separate claim against a third party for fraud. As for issue preclusion, the Court agreed that Freedom is stuck with its credit bid purchase prices as the value of the properties. That does not eliminate damages, however -- it only limits them.

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WISCONSIN VALLEY IMPROVEMENT COMPANY v. UNITED STATES OF AMERICA (June 22, 2009)

Wisconsin Valley Improvement Company (“WVIC”) operates dams on the Wisconsin River, some of which are licensed by the Federal Energy Regulatory Commission. Years ago, during a license renewal process, the U. S. Forest Service asked the Commission to impose conditions on the WVIC license that would curtail certain flooding on federal land. WVIC claimed that it had prescriptive easements over the federal lands that made the requested conditions inappropriate. In a brief filed with the Commission in February of 1996, the Forest Service explicitly did not concede the easement claim but argued that it had a right to the conditions regardless of the existence of a valid easement. The matter was resolved on the grounds that the existence of an easement was irrelevant. Thus, the issue of the easement’s existence was not resolved. In June of 2008, WVIC filed suit under the Quiet Title Act to establish their flowage easement. The district court concluded that the suit was not filed within the twelve-year statute of limitations of the Quiet Title Act because the claim accrued no later than the filing of the February 1996 brief. It dismissed for lack of subject matter jurisdiction. WVIC appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Van Bokkelen affirmed, as modified. The Court noted that a claim accrues, for purposes of the Quiet Title Act, when a person knows or reasonably should know that the United States maintains an adverse claim to property. Although the Court recognized that there was no evidence that the Forest Service ever flatly forbade the flooding of its lands, it agreed that its refusal to concede the issue in the Commission briefing was enough to lead a reasonable person to conclude there was a potential dispute. That knowledge is enough to trigger the period of limitations. The Court did take issue with the district court's characterization of the issue as jurisdictional. Subject matter jurisdiction is granted by federal law -- statutes of limitations do not detract from a federal court’s authority to decide the issues. The Court affirmed the judgment as modified to a dismissal with prejudice.

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NATIONAL RIFLE ASSOCIATION OF AMERICA v. CITY OF CHICAGO (June 2, 2009)
 

The City of Chicago and the Village of Oak Park, Illinois both ban the possession of most handguns. The Supreme Court decided District of Columbia v. Heller in 2008, holding that the Second Amendment prohibited the District of Columbia from banning the possession of handguns for self protection. The National Rifle Association then sued the municipalities. The district court dismissed the suits against Chicago and Oak Park because Heller dealt with the authority of the District of Columbia. In other, older cases the Supreme Court has refused to apply the Second Amendment to the states. The NRA appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner affirmed. The Court conceded that the Supreme Court, in Cruikshank, Presser and Miller, was presented with arguments based on the privileges and immunities clause. The NRA argues that the Second Amendment should be applied to the states under the "selective incorporation" approach that was not argued in those cases. The Court rejected that argument, stating that it is bound to follow the Supreme Court precedent if it has "direct application" to the case, even if a different argument is presented and even if the original reasoning has been brought into question over time. The Second Amendment precedent does have direct application as is evident from the Supreme Court's footnote 23 in Heller itself. There, the Supreme Court specifically commented that the continuing vitality of that precedent was not before it. The Court concluded that it is up to the Supreme Court to revisit the issue, even if the current legal theory is not the one addressed by the precedent. The Court added its own view that it is not convinced, as some others are, that the Supreme Court will change its approach to the Second Amendment when afforded the opportunity.

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UNITED AIRLINES, INC. v. REGIONAL AIRPORTS IMPROVEMENT CORPORATION (May 5, 2009)

When United Airlines reorganized in bankruptcy, several issues remained unresolved. One of those issues involved $60 million of secured loans to United for terminal improvements at Los Angeles International Airport. United is under an obligation to pay to the lenders the full value of the secured asset, up to the $60 million. The bankruptcy court used a discounted-cash-flow analysis to value the asset, mainly because there was little evidence in the record on the market value of improved airport terminal space. The court's analysis resulted in a value of approximately $35 million. The lenders appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Manion reversed and remanded. The Court addressed two aspects of the court's analysis -- the appropriate annual rental rate and the appropriate discount rate. With respect to the rental rate, the Court rejected the court's use of a $17 per square foot rental rate. The Court noted that the evidence of the $17 rate represented unimproved airport terminal space. The security for the $60 million loan, however, is improved airport terminal space. There is evidence in the record that improved space at Los Angeles International Airport is rented for as much as $63 a foot. The Court recognized that the United space may not be worth as much as $63 because of several factors that distinguish it from the actual space rented. The Court noted that any rental revenue in excess of $30 would result in a full repayment of the $60 million loan. The Court concluded that the space could be leased for at least $30 a foot. With respect to the discount rate, the Court also took issue with the bankruptcy court’s approach. The court simply averaged the rate suggested by the lenders and the rate suggested by United. Relying on the fact that Los Angeles International Airport is currently operating at full capacity and can itself raise money at 8%, the Court concluded that the discount rate should not exceed 8%. The reduced discount rate also reduced the rental amount at which the lenders would fully recover the amount of their loans to $23 a foot. The Court concluded that the lenders were entitled to that full recovery.

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WESTFIELD INSURANCE COMPANY V. SHEEHAN CONSTRUCTION COMPANY (APRIL 29, 2009)

Several home owners in the same subdivision began to notice water damage in their new homes. Litigation ensued against the general contractor, Sheehan Construction Co. Although the problem was traced to one of Sheehan's subcontractors, Sheehan settled the litigation for nearly $3 million. Sheehan is ensured by Westfield Insurance Co. under a general liability policy. Sheehan brought an action against Westfield for indemnity. The district court granted judgment to Westfield. Sheehan appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Williams affirmed. Westfield's policy excluded damage to "your work” if it was included in the "products-completed operations hazard." "Your work" is defined in the policy to include work performed by Sheehan or on its behalf. Although the Court recognized that the standard form policy was changed in 1986 to exclude a subcontractor’s work from the "your work" exclusion, it noted that Sheehan's policy did not contain the newer language. With respect to the "products-completed operations hazard" requirement, the Court also looked to the policy definition and concluded that the term was designed so that it covered accidents that occurred during construction but did not cover poor workmanship in a completed house. The Court concluded that the "your work" exclusion directly addressed the homeowners’ harm at issue and resulted in non-coverage.

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SWANSON v. BANK OF AMERICA (April 24, 2009)

The Court denied rehearing in a case originally decided on March 19 and reported here. The Ninth Circuit released an opinion at odds with the Court's on March 16 (and therefore not considered or discussed in the March 19 opinion), Nevertheless, the Court stuck with its analysis and remarked that the Ninth Circuit panel was at odds with an earlier, nonprecedential opinion of the same court.

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IN RE: KUEHN (April 16, 2009)

Stephanie Kuehn completed all the coursework necessary for a master's degree at Cardinal Stritch University. She did not, however complete her obligation with respect to tuition. When the university awarded her a degree, she still owed $6,000 in tuition. When she requested a transcript in order to qualify for a salary increase, the university refused. Kuehn filed for bankruptcy. The university continued to refuse to provide her a transcript, both while the bankruptcy case was pending and even after the discharge order. The bankruptcy court ordered the university to provide a transcript and pay damages and attorneys fees. The district court affirmed. The university appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Wood affirmed. The Court recited the Bankruptcy Code provisions that prohibit a creditor from taking "any act to collect" a claim during the bankruptcy proceeding or after a claim has been discharged. The Court determined that whether the university was acting to collect a debt depended on whether Kuehn had a right, or property interest, in obtaining a transcript. Since the Wisconsin Supreme Court has never addressed the issue, The Court was forced to predict what the court would do. The Court concluded that the Wisconsin Supreme Court would hold that students are joint owners of the data reflecting their grades. Relying on the Wisconsin Supreme Court’s reasoning in Hirsch as well as established university custom, the Court concluded that a right in one’s grades would be meaningless without a right to a transcript. The university’s refusal to provide the transcript was therefore an act to collect a debt and violated the automatic stay and the discharge injunction.  

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UNITED STATES OF AMERICA v. FLETCHER (April 10 , 2009)

Cap Gemini purchased a consulting business from Ernst & Young in 2000. The Ernst & Young partners received shares in the new business in exchange for their partnership shares. The partners preferred to treat the receipt of shares as income in 2000. The company wanted to put some restrictions on the shares to ensure that the partners would remain with the new organization. They all agreed on a methodology that they thought would serve both purposes. The shares were all transferred and fully taxable in 2000 but were restricted for almost five years. One of the partners, Cynthia Fletcher, received shares with a market value of approximately $2.5 million. She reported this as ordinary income in 2000. Fletcher left the organization and collected the shares remaining in her account. Because the market price of the stock plummeted after the acquisition, it turns out that the partners would have been better off not taking the income in the first year. Fletcher filed an amended tax return for 2000 and took the position that her only income in 2000 was the $650,000 that was actually distributed from her account. Although the Internal Revenue Service processed the refund, the United States filed suit to recover. The district court granted summary judgment to the United States and ordered Fletcher to refund the refund. Fletcher appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Tinder affirmed. The Court first made it clear that Fletcher was not attempting to change the form of the transaction. Instead, she argued that the actual terms of the original transaction had tax consequences that are different than originally reported. The Court disagreed with the substance of her argument, however. Although the stock was restricted, the partners bore the economic risk and were the beneficial owners as of 2000. Even though the partners did not have cash in hand, the economic value of the stock was within their control. Therefore, the income was constructively received in the year 2000 and properly reported as such originally.

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CITY OF JOLIET, ILLINOIS v. NEW WEST, L.P. (April 9, 2009)

The City of Joliet filed eminent domain proceedings to acquire the Evergreen Terrace Apartments. New West, the owner of the apartment complex, filed an action under 42 U.S.C. § 1983. New West sought an injunction and damages, alleging that federal law preempted Joliet's attempts to condemn the property. The district court originally put the condemnation on hold and dismissed the § 1983 action. On the first appeal, the Court reversed and directed the district court to resolve the condemnation proceedings. On remand, HUD intervened and contended that the condemnation was precluded by two different federal statutes. The district court rejected HUD’s argument and certified the case for interlocutory appeal. New West and HUD appeal.

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The court reviewed the three federal statutes in play. Section 8 of the Housing Act of 1937 provides federal rent subsidies. Section 221 of the National Housing Act creates a federal government mortgage insurance program. Finally, the Multifamily Assisted Housing Reform and Affordability Act of 1997 provides a mechanism for HUD to renegotiate mortgages under section 221. Owners who renegotiate under the 1997 Act must promise to maintain availability for low income tenants for 30 years. Evergreen Terrace participated in all three programs. The Court held in the first appeal that Section 8 does not preempt any eminent domain proceeding. HUD argues that a condemnation would interfere with the purposes of Section 221 and the 1997 Act, both of which are designed to preserve low income housing stock. The Court noted that the Supreme Court recently warned against using preemption inferred from a clash of goals and objectives. Only if an agency has issued a preemptive regulation with the force of law should that power be used expansively. The Court noted that no such HUD regulation exists with respect to eminent domain powers. In fact, the Court did not even agree that the clash of goals even existed. All three federal statutes are voluntary. Even when used, private owners can withdraw from the programs at any time. Without such a regulation, the Court concluded that the eminent domain should go forward.

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SANDOVAL v. CITY OF CHICAGO (March 30, 2009)

Juan Sandoval and Sidney Pennix were Chicago police officers. They were also in the military reserve and on active duty in El Salvador and Iraq, respectively. When Chicago scheduled the examination for candidates for sergeant, Sandoval and Pennix requested an opportunity sit for the test. Chicago accommodated their requests by offering them the opportunity to take the test in, respectively, San Salvador and Frankfurt. They both took the test, passed and were placed on the eligibility list. They then filed suit pursuant to the Uniformed Services Employment and Reemployment Rights Act (“USERRA”). They both allege that they should have been offered locations closer to where they were stationed and also seek compensation for the transportation cost to the testing locations. The district court granted summary judgment to the City of Chicago. Sandoval and Pennix appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Evans affirmed. The Court focused on the language of USERRA. It provides that a person serving in the military may not be denied a benefit of employment because of that service. In other words, said the Court, the Act requires an employer to treat persons on active duty the same as other employees. Here, Sandoval and Pennix seek an accommodation - not equal treatment. Chicago treated Sandoval and Pennix the same as it would have treated any other employee who was on leave for a non-military reason. The City did not violate USERRA.

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HEITMANN v. CITY OF CHICAGO (March 25, 2009)

The City of Chicago and the police officers' union have agreed to a procedure for police officers to take compensatory time off in lieu of overtime pay. Under the Fair Labor Standards Act, a public employee who has accrued compensatory time off and has requested to use it is permitted to "use such time within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the public agency." Several officers with accumulated compensatory time off brought a suit against the City. They contend that they should be allowed to take a particular days of their own choosing unless their absence at that time would result in a shortage of available officers. Conversely, the City contends that it is the department's choice. In their view, an officer may submit a generic request for compensatory time off. The City then decides what days, if any, to allow. The magistrate judge below concluded that the City had no set procedure. The lack of procedure failed to ensure the rights of the officers. He issued a detailed injunction specifying the process the City must use in response to future applications. The City appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams vacated the injunction and remanded. As an initial matter, the Court noted that the Fair Labor Standards Act only allows injunctions in suits by the Secretary of Labor and only when the remedy at law is inadequate. Here, any failure of the City to honor the officers' time off rights is compensable by money. The unavailability of an injunction, however, does not mean that the officers are not entitled to a remedy. The Court concluded that the statutory language was not clear and included such open-ended words as "reasonable" and "undue." But the Court looked to an agency regulation that does address the issue. The agency's approach is not unreasonable and is thus entitled to deference under Chevron. The regulation defines "reasonable period" and "unduly disrupt" - and it does so in the same way that the officers do. The Court vacated the injunction and remanded for an award of non-injunctive relief to be determined by the magistrate judge.

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CONTILLI v. LOCAL 705 INTERNATIONAL BROTHERHOOD OF TEAMSTERS PENSION FUND (March 23, 2009)

Vito Contilli reached retirement age in 1995 but continued to work for two years. He retired in October of 1997 and applied for his retirement benefits in January of 1998. Applying their rule that a retiree had to apply for benefits, the union Pension Fund began paying his monthly pension payments in February. The Fund neither paid Contilli for the interim months nor increased his monthly benefit to take those months into account. Contilli brought an action, claiming that the approach violated ERISA’s non-forfeiture rule. The district court found in favor of the Fund. Contilli appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner vacated and remanded. The Court agreed that the retiree application requirement was not a problem – nor was a deferral of retirement without any benefit payment while the retiree is still working. Section 1053(a) requires, however, that any delay in benefits once a retirement is effective must be made up with payments for the missing months or with an actuarial adjustment to payments in future months.

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SWANSON v. BANK OF AMERICA (March 19, 2009)

Bank of America issued a credit card to Laura Swanson. Pursuant to the credit agreement, Bank of America could increase the interest rate if her balance exceeded her credit limit twice in any 12-month period. The higher interest rate was to take effect at the beginning of the billing cycle to which it applied. Swanson exceeded her credit limit at the close of the August 2007 and November 2007 cycles. Bank of America applied the higher interest rate effective at the beginning of the November cycle. Swanson brought suit, alleging that a Truth in Lending Act regulation precludes the imposition of a higher interest rate in that circumstance. The district court granted judgment to the bank. Swanson appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Evans affirmed. The Court first analyzed the regulation at issue. Although both the bank and Swanson argued that the regulations supported its position, the Court concluded that the regulation did not squarely address the issue at hand. It therefore consulted the commentary. The bank relies on the comment that states that no notice of the change is required if the specific change is set forth in the initial agreement. The comment gives as examples an increased rate after a lower introductory rate and an increased rate when a customer fails to keep a promised minimum account balance. Swanson, on the other hand, relies on the comment that notice must be given if the contract allows the creditor to increase the rate at its discretion. The Court noted that one appellate court and at least six trial courts had considered the issue and had all agreed with the bank's position. Finding these decisions "sensible," the Court also agreed with the bank. It pointed out that the contract between the bank and Swanson allowed the practice. An ambiguous regulation with an ambiguous commentary was not enough to override the specific contract term. Finally, the Court observed that the Federal Reserve had promulgated a new regulation that would prohibit the vary practice at issue. The new regulation is not effective until July of 2010 -- Swanson must live with the law as it stands today.

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SEC v. ENTERPRISE TRUST CO. (March 18, 2009)

Although only in existence for two years, Enterprise Trust managed more than $100 million in hundreds of accounts. Some of the accounts were custodial only, and others authorized Enterprise to choose securities. Enterprise did not honor its customers instructions and traded very aggressively in both the noncustodial and custodial accounts. It lost more than half of the money in its care before the SEC stepped in. The lower court appointed a receiver to propose a distribution plan for Enterprise’s assets. The receiver proposed a plan under which holders of custodial accounts recovered approximately 60% of their investment while holders of noncustodial accounts recovered between 25 and 50% of their investment. The receiver also proposed the use of illiquid assets to repay the noncustodial accounts, further compromising their value. The district court approved the plan. Several owners of noncustodial accounts, who were not parties to the case, appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court first addressed the difficult question of appellate jurisdiction. In 1994, the Court held, in SEC v. Wozniak, that investors who were affected by a plan of distribution could not appeal without becoming formal parties through intervention. The Court believed that Supreme Court precedent supported the proposition that only a party could appeal. In 2002, however, the Supreme Court held, in Devlin v. Scardelletti, that nonparty class members could appeal. Devlin called into question the Court’s understanding of the Supreme Court’s holdings. After a review of applicable precedent, the Court concluded that a nonparty whose rights are decided and who cannot litigate the issue in some other forum does have the right to appeal. Thus, the Court overruled Wozniak. The Court found the resolution of the merits much easier. Applying an abuse of discretion standard, the Court found that the reasons the plan favored the custodial account holders over the noncustodial account holders – that the custodial account holders did not authorize Enterprise to take any action with their assets, they were unaware that Enterprise had used their assets, and they would not have benefited had Enterprise’s strategy succeeded -- made sense. In fact, the Court opined that the custodial account holders had the stronger objection -- that the noncustodial account holders received anything before the custodial account holders were fully repaid. Having found no abuse of discretion, the Court affirmed.

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IN RE: GOLDBLATT'S BARGAIN STORES (March 18, 2009)

Before its bankruptcy, Goldblatt's operated six stores in the Chicago area. In January 2003, Great American Group agreed to buy the inventory at two of the stores at a deep discount. Shortly thereafter, Great American agreed to do the same with the inventory at the other four stores. Both sales were contingent on the independent appraisal of the inventories. Both sales were approved by LaSalle Bank, Goldblatt's principal creditor. Before the sales, Great American learned that inventory purchased for $450,000 had been moved from the four stores to the two stores. Great American did not advise the Bank of that fact. The independent appraisal of the first sale confirmed that the inventory was worth at least as much as it had been represented. The appraisal of the inventory from the four other stores, however, indicated that the inventory was worth at least $2 million less than Goldblatt's had estimated. The results of the second appraisal entitled Great American to a refund of approximately $1 million from Goldblatt's. LaSalle Bank, although required by contract to pay, refused to do so. The bankruptcy court, after a trial, concluded that Great American was legally obligated to disclose the movement of the inventory to LaSalle. The court concluded, however, that LaSalle would not have acted any differently had it known and that LaSalle had not shown that it incurred any loss from the movement. On appeal, the district court reversed. The district court agreed that Great American owed a duty of disclosure to LaSalle. However, it held that the fraud excused LaSalle Bank from any obligation to perform. Great American appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder reversed. The Court agreed that a victim of fraud is typically entitled to rescission. Here, however, LaSalle does not seek rescission. It simply wants to be excused from having to pay the deficiency based on the overestimation of the second inventory. Before LaSalle is entitled to a remedy, it must establish reliance and injury. The Court agreed with the bankruptcy judge that LaSalle had not proven neither reliance nor loss.

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HAHN v. TRIUMPH PARTNERSHIPS LLC (March 4, 2009)

Triumph Partnerships acquired some overdue credit card debt from a bank, including a debt owed by Marylou Hahn. Triumph sent a letter to Hahn, stating that she had an "amount due" of $1051.91 and that she had "interest due" of $82.64. Hahn filed suit under the Fair Debt Collection Practices Act. Hahn alleged, and Triumph conceded, that the $82.64 represented the interest that had accrued only since Triumph acquired the debt. The $1051.91 included interest that had accrued prior to Triumph's acquisition of the debt. Hahn alleged, therefore, that the statement was a false representation of the debt and prohibited by the Fair Debt Collection Practices Act. The District Court granted summary judgment to Triumph. Hahn appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court concluded that the letter contained no false representation. It held that an “amount” that is due can include principle, interest and other components. The Court specifically pointed out that the letter did not assert that the $82.64 was the totality of the interest that had accrued on the debt since its inception. Since the statement was not false, the Court held that it does not violate the Fair Debt Collection Practices Act. Alternatively, the court affirmed on the ground that the statement was immaterial. The Court held that materiality is an element in a §1692e action. Since the letter accurately reported the debt and accurately computed the debt, whether it segregated the post-acquisition interest was immaterial. 

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SECURITIES AND EXCHANGE COMM. v. KOENIG (February 26, 2009)

James Koenig was the Chief Financial Officer of Waste Management, Inc. In the early 1990s, after years of acceptable growth, the company’s financial performance began to suffer. Koenig devised several accounting strategies that made the company appear more profitable than it was. Koenig resigned in January of 1997. In October of 1997, the company disclosed in a press release that its financial statements were inaccurate and unreliable. The SEC filed a complaint against Koenig in March of 2002. At trial, the jury found that his accounting strategies were fraudulent. The court imposed a $2.1 million civil penalty, ordered the disgorgement of almost $1 million in bonuses, imposed $1.2 million in pretax interest, and enjoined Koenig from serving as a director of a public company. Koenig appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Wood affirmed in part, reversed in part and remanded. The Court first addressed Koenig's statute of limitations argument. Although recognizing that the statute is five years and that more than five years passed between Koenig's resignation and the filing of the complaint, the Court rejected Koenig's argument. Instead, the Court noted that there has long been a special rule for statutes of limitations in fraud cases. A victim of fraud has the full statutory time to file, beginning from the date the wrong came to light or would have with due diligence. Since Koenig's accounting misdeeds were not public until the company issued its press release and Koenig never claimed that the SEC could have known earlier, the complaint was timely. The Court then addressed several trial management objections. It concluded that the lower court did not err in allowing the SEC to put on evidence of the motives of the company's new management. Although originally denying the SEC's motion in limine, the lower court admitted motive evidence after Koenig "opened the door." The court had warned Koenig that it would allow the evidence if Koenig made motive at issue. Second, the Court approved of the trial court’s practice of allowing the jurors to submit questions for witnesses and found no abuse of discretion. Third, the Court found no violation of the discovery or notice rules in the SEC's calling as its witness Koenig’s own expert, whom he did not call. Koenig also complains that the $2.1 million penalty was greater than allowed by the statute. The statute limits a penalty to no greater than the greater of $100,000 or the defendant’s pecuniary gain. The court included pre-judgment interest in its calculation of pecuniary gain. The Court approved of this formula. It held that pecuniary gain is the amount the defendant obtained as a result of his fraudulent accounting practices plus any return he could have made by investing that sum, until its disgorgement. The Court did disagree with the district court's computation of Koenig's bonuses. The company awards bonuses based on increases in the company's earnings over the prior year. Based upon the testimony of the SEC's expert, the Court concluded that the company’s corrected earnings increased from 1991 - 1992. The Court remanded for a recalculation of Koenig’s bonuses and, if necessary, a recalculation of the penalties.

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SHALES v. GENERAL CHAUFFEURS, SALES DRIVERS AND HELPERS LOCAL UNION NO. 330 (February 27, 2009)

The losers is in a contested union election sued the winners. The defendants prevailed on all counts. As discovery proceeded during the case, it became apparent that plaintiffs could not support some of their claims. Defendants demanded that some claims be withdrawn, to no avail. Defendants asked for sanctions under 28 U.S.C. §1927 and FRCP 11. The court ordered plaintiffs’ attorney, James Banks, to pay $80,000 in sanctions. Banks appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams affirmed. The Court first addressed the defendant’s argument that the appeal was not timely. Defendants argued that Bank's motion to reconsider should not have suspended the time for appeal because it lacked merit. The Court declined to adopt such a rule. The actual rule is that the existence of the motion, and not it's merit, is what suspends the time for appeal. The Court then addressed Bank's principal argument -- that the district court should have taken into account his ability to pay in determining a sanction. The Court agreed that Rule 11 requires a court to take into account a sanctioned party’s resources. However, the Court noted that the lower court also imposed sanctions under § 1927, with a finding of bad faith. The Court concluded that tort damage principles apply to a determination of sanctions under § 1927. As such, the measure of damages depends on the victim's loss, not a lawyer's ability to pay.

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KURZ v. FIDELITY MANAGEMENT & RESEARCH CO. (February 23, 2009)

Kurz and Heinzl both invested in portfolios managed by Fidelity Management & Research Co. (“Fidelity”). Apparently, some Fidelity employees placed trades with Jeffries & Co. in return for kickbacks from Jeffries. The SEC initiated a proceeding under the Investment Company Act and the Investment Advisors Act. Fidelity and the SEC entered into a consent decree. Kurz and Heinzl thereafter filed a class-action suit in state court, alleging that the employees’ conduct resulted in a breach of contract by Fidelity. Fidelity removed to federal court on the basis that their failure to disclose the employees’ misconduct was a securities law issue. The district court denied Kurz’ motion to remand and entered judgment for Fidelity. Kurz appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall affirmed. The Court referred to the Securities Litigation Uniform Standards Act of 1998 (the “Act”). The Act generally bars class actions based on state law which allege an omission of a material fact “in connection with the purchase or sale of a covered security. The Court noted that there are exceptions to the bar (like a derivative action) but Kurz did not invoke any exception. Instead, his position was that the claim was a contract claim -- not one for a misrepresentation or omission. The Court agreed that a true action for breach of contract would not be barred by the Act but concluded that Kurz could not maintain an action for breach of contract. The principal reason for his inability to do so was the complete absence of any promise made by Fidelity to Kurz.

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 NORFOLK SOUTHERN v. BOX (February 11, 2009)

The State of Illinois requires railroads to install walkways alongside railroad tracks in any switching yard built or renovated after February 2003. Norfolk Southern challenged the requirement in the district court, contending that it is preempted by federal law. The district court found for Illinois, first holding that federal law does not cover the subject matter and then, after a bench trial, deciding that the regulation does not conflict with a federal objective. Norfolk Southern appeals. 

In their opinion, Chief Judge Easterbrook and Judges Bauer and Sykes affirmed. The Court first noted a split in both state and federal courts over whether state walkway rules are compatible with federal law. Courts have upheld rules in California, Colorado, and Maryland. Texas and Indiana rules have been struck down as preempted by federal law. The Court3 looked to the federal law. Federal law requires that regulations relating to railway safety be as nationally uniform as practicable – but it allows a state safety regulation to remain in effect until a federal regulation covers the subject matter of the state regulation. There are no federal regulations dealing with railway walkways in particular. Norfolk Southern contends that the comprehensive federal regulation of roadbed design and construction "covers" walkways because they are so integrally related. The Court, noting that the Supreme Court has adopted a more narrow reading of "cover" than Norfolk Southern, rejected that notion. In fact, the Court referred to a still-standing 1977 federal decision to leave walkway regulation to the states. The Court moved on to the question whether the Illinois scheme conflicts with federal objectives. Illinois grants broad discretion over the design and construction of the walkways. Norfolk Southern presented expert testimony that the only viable walkway construction material was gravel but that even gravel would cause drainage problems. The district court discounted the latter conclusion for two reasons. First, photographs in the record of Norfolk Southern switching yards showed that the shallower slope between tracks that the expert said would cause drainage problems already existed. Yet, the expert could not describe the drainage problems or show evidence of yards that had the V-shaped slope he testified was necessary to prevent drainage problems. Second, in response to the court’s questions, the expert was unable to testify regarding the history of compliance with walkway regulations in other states that have had the requirement for years. If compliance with the regulation led to all sorts of drainage or other problems, the records in those states surely would show that. The Court did not find the district court’s finding clearly erroneous on that issue. Finally, the Court refused to address Norfolk Southern’s complaints that specific local situations might make compliance impossible, advising the railroad to work details out with the Commission.

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EEOC v. WATKINS MOTOR LINES (January 23, 2009)

Watkins Motor Lines (“Watkins”) experienced three episodes of employee-on-employee murder or attempted murder. It decided it would no longer employ persons who had been convicted of a crime of violence. A few months after Watkins adopted its new policy, Lyndon Jackson applied for a job. Jackson had a criminal record. Watkins declined to hire him for that reason. Jackson filed a complaint with the EEOC. The EEOC initiated an investigation. It sought to determine whether the policy had a disparate impact on minorities and, if so, whether it was a business necessity. In April 2005, the EEOC issued a subpoena to Watkins. Watkins and Jackson reached a settlement in January 2006, contingent on the EEOC abandoning the investigation. Jackson withdrew his charge – but the EEOC pressed on. It sought to enforce the subpoena in the district court. The court dismissed the EEOC’s action for lack of subject-matter jurisdiction. The court concluded that no valid charge was pending because the EEOC should have allowed Jackson to settle and withdraw his charge. The EEOC appeals.

In their opinion, Chief Judge Easterbrook and Judges Evans and Tinder reversed and remanded. Once an EEOC charge is filed, the agency determines the direction of the investigation. A charge can be withdrawn only with the consent of the agency and only when it will not defeat the purposes of Title VII. Here, the Court noted that a valid charge was filed and that the agency sought to continue the investigation even after Jackson wanted to withdraw. The agency did not commit error when it decided to continue the investigation of Watkins’ employment policy for the benefit of other applicants. The Court analogized the situation to those in which a representative class plaintiff settles with the defendants or in which settling parties want to vacate earlier judicial decisions in their case. The Supreme Court has rejected those arguments in Deposit Guaranty National Bank v. Roper, United States Parole Commission v. Geraghty, and U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership. Watkins’ argument that forcing the EEOC to accept Jackson’s withdrawal will facilitate his settlement ignores the interests of the unrepresented persons. Watkins and Jackson are free to settle – and the EEOC is free to continue its investigation.

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KATZ v. GERARDI (January 5, 2009)

Jack Katz brought this action on behalf of a class of persons who contributed real property to a real estate investment trust (“REIT”). In exchange, they received an interest in the REIT. The REIT merged into a new entity in 2007. The interest-holders were offered either cash or an interest in the new entity. Katz took the cash but filed suit in state court, alleging that the offer violated the terms of their original agreement with the REIT. He based the action on the Securities Act of 1933 ( “’33 Act”). Defendants removed the suit to federal court under the Class Action Fairness Act of 2005 (“CAFA”). The district court concluded that removal was not allowed by the ’33 Act. The defendants petition for appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes granted the petition and vacated and remanded the decision of the district court. The Court first addressed whether Katz’ action was even one under the ’33 Act. The ’33 Act applies only to purchasers of securities – Katz and the class members are sellers of securities. The Court was inclined to believe that Katz was styling his claim as one under the ’33 Act in order to prevent removal. The district court had acknowledged the same issue. It decided that the weakness of the pleading went to the merits, not to whether it was removable. The Court recognized the difficulty in distinguishing between a claim designed to defeat federal jurisdiction and one, though ultimately unsuccessful, is properly pleaded. Ultimately, the Court decided to accept the pleading as one under the ’33 Act and address the conflict between the laws.

The ’33 Act provides that actions brought under the statute in state court are not removable except in particular circumstances. CAFA allows for removal of class actions if certain criteria are met – which admittedly are met here. The Court noted the canons of construction that apply when statutes are in conflict – an older statute yields to a newer and a less specific yields to a more specific. But the Court concluded that it did not have to apply those canons. The statutes, in fact, are not incompatible. The very language of CAFA provides the answer. The broad removal authority granted by CAFA is modified by the almost identical lists of exceptions in §1332(d)(9) and §1453(d). The Court concluded that class actions brought under the ‘33 Act are removable unless one of the §1453(d) exceptions applies. Katz relied on one of the exceptions – claims that relate to rights and duties relating to any security. The Court noted an inconsistency between Katz’ attempts to fit his claim into the exception while still relying on the ‘33 Act. Nevertheless, the Court decided the best course was to remand to determine whether the claim fit within the exception.

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IDRIS v. CITY OF CHICAGO (January 5, 2009)

The City of Chicago (the City”) has installed cameras at intersections since 2003. They are used to identify drivers who fail to obey red lights. The ordinance makes the owner (or, in the case of a leased vehicle, the lessee) of the vehicle liable for the fine – regardless of who was driving at the time. A group of car owners brought suit. Each had been fined for a traffic violation. In each case, however, someone other than the car’s owner was driving the car at the time of the violation. The plaintiffs allege that the ordinance violates due process and equal protection. The court granted summary judgment for the City. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner affirmed. The Court quickly disposed of plaintiffs’ substantive due process argument. It noted the absence of a fundamental liberty interest – a prerequisite for substantive due process. The Court then considered the enforcement system under the rational-basis doctrine. Again, it seemed to have little difficulty in finding the ordinance rational. The owner-liable system reduces the cost of enforcing the law and improves compliance with the law. The facts that it raises revenue and adopts a system different from the state system do not make it irrational. The distinction between owners and lessors is not discriminatory – it is, in fact, the rational approach. Finally, the Court rejected the plaintiffs’ procedural due process arguments. Defenses and objections must be made at a hearing and reviewed in state court before they can be the subject of a federal court proceeding.

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DENG v. SEARS (January 5, 2009)

Yuming Deng was a software developer at Sears Roebuck and Co. (“Sears”). He compiled data that Sears used in making credit decisions. Unfortunately, Deng took serious issue with a 2001 performance review and erupted. Deng stopped coming to work, claiming a disability. He continued to show up at Sears occasionally, sometimes causing a disruption. On his last visit, he deleted from Sears computers much data and the software models Sears used in analyzing the data. After an internal investigation concluded that Deng destroyed the data in retaliation for the performance review, Sears reported his conduct to the local police. The police concluded that Deng had violated Illinois law and sought him out for his version of the story. Deng, however, had left the state. Charges against him were filed in his absence. A year and a half later, Deng was arrested and brought back to Illinois. When a witness did not appear at his preliminary hearing and the judge refused a request for a continuance, the prosecutor filed a nolle prosequi. Deng then brought this action for malicious prosecution against Sears. The court granted summary judgment to Sears, holding that the nolle prosequi was not a “favorable” outcome for Deng. Deng appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans affirmed. The relevant elements of the tort of malicious prosecution in Illinois are a) a favorable outcome in the criminal case, b) an absence of probable cause, and c) malice. The Court took note of the problems presented by the first element – favorable outcome – which was relied on by the district court. The Illinois Supreme Court has held that a nolle prosequi is not a favorable outcome if the case is abandoned for reasons not related to the innocence of the accused. But whether the failure of a witness to appear is a favorable outcome is an open question in Illinois. The Court questioned the merits of Illinois’ approach. Here, for example, the prosecutor was forced to attend and testify at a deposition - which the Court viewed as an intrusion on the prosecutorial function. Nevertheless, the Court respected Illinois’ right to its choice. The Court solved its dilemma by sidestepping the favorable outcome element of the tort and focusing on the absence of probable cause. Although Deng tried to explain away his conduct, the Court had no difficulty in finding probable cause.

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KAY V. BOARD OF EDUCATION (October 27, 2008)

Gail Kay taught in the Chicago public school system. After she retired in 1994, she brought a § 1983 action against the Board of Education (“Board”). She alleged that the Board penalized her on account of her speech. The parties settled the litigation in 1996 and her case was dismissed. In the settlement, the Board offered to rehire Kay into an available future position. In 1997, she was offered an opportunity to return to her former school. She taught for seven more years – yet she never received another paycheck. After retiring again in 2004, she brought suit against the Board in federal court to enforce the 1996 settlement, alleging that her seven years of teaching without pay was a breach of the settlement. The district court dismissed the case on its own accord for “lack of venue” because Kay was governed by a collective bargaining agreement that required arbitration. Kay appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder vacated the judgment of the court and remanded with instructions to dismiss for lack of subject matter jurisdiction. First, the Court listed several reasons why the court erred in dismissing the suit because of the collective bargaining agreement’s arbitration clause: a) only the union and employer can invoke the clause, b) a settlement of a dispute is not arbitrable as a claim arising under the agreement, c) a collective bargaining agreement cannot require the arbitration of civil rights claims, and d) the Board cannot compel arbitration with a volunteer, which they claim is Kay’s status. The panel also criticized the court below for acting independently, without benefit of the views of the parties.

Although the Court held that the lower court erred in dismissing the complaint, it identified (and asked for supplemental briefing on) a different problem. The Supreme Court’s decision in Kokkonen v. Guardian Life Ins. Co. makes clear that the vehicle for enforcement of a settlement of a federal case is a contract claim, which cannot be brought in federal court unless it qualifies independently under diversity principles. Apart from a settlement, a state’s wage-payment statute is the proper vehicle for a claim for unpaid wages. Kay conceded that she has no federal claim to enforce the settlement or for unpaid wages. She asserted, however, a claim that the Board’s failure to abide by the settlement is further retaliation for her assertion of constitutional rights. The only assertion of rights she maintains, however, are those that pre-dated the settlement. The Court noted that the Board’s failure to pay cannot be deemed a revived retaliation claim under Kokkonen. Finally, the panel did consider whether the Kokkonen rule applied in the context of a state actor defendant. It held that the Constitution does not require a state actor to keep its promise; it only requires some process before depriving a person of property. Kay’s opportunity to litigate her case in state court is process enough.  

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