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

GASTINEAU v. WRIGHT (January 19, 2010)

James and Christy Gastineau were plaintiffs in a Fair Debt Collection Practices Act (FDCPA) case. They were represented by Robert Duff. Although Duff was not their original counsel and did not become so until about three years into the case, he did negotiate the settlement of the case on the first day of trial. He asked for attorney's fees of approximately $140,000. The district court judge awarded approximately $50,000, reducing both the number of hours and the hourly rate in setting that amount. Duff appeals.

In their opinion, Judges Kanne and Tinder and District Judge Griesbach affirmed. The Court first noted that an award of attorney's fees is reviewed on a "highly deferential" version of the already deferential abuse of discretion standard. The district court concluded that Duff’s hours were excessive. He noted that Duff was inexperienced in FDCPA cases and became involved fairly late in the case, after most of the discovery and motion practice had been completed. Much of the time spent was learning the law. The court also concluded that Duff’s rate was excessive for the subject matter. He relied on an affidavit of an experienced lawyer in the area who believed that to be so. The Court found no impediment to the combined reduction of both hours and rate. Having found no abuse of discretion, the Court affirmed.

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SRAIL v. VILLAGE OF LISLE (December 7, 2009)

The Oak View subdivision was built in the 1950s. Since its earliest days, a private utility company has provided its residents with water. The Village of Lisle developed its municipal water system in 1967. The municipal system has grown as developers have donated water mains serving new projects. Lisle also purchased a private water utility in 1980. Although both the municipal system and the Oak View system receive their water from the DuPage Water Commission, the Oak View system has insufficient pressure for firefighting. Residents of Oak View sued the Village, alleging that the Village violated the Equal Protection Clause by providing municipal water to some residents and not others. The court granted summary judgment to the Village. The residents appeal.

In their opinion, Judges Ripple, Kanne and Sykes affirmed. The Court first noted that the residents are not members of a suspect class and they do not allege an infringement of a fundamental right. Therefore, the Court's review is on the rational basis test. Although the Court identified issues with the plaintiffs' status as a "class of one" and with an illegitimate animus requirement, it found it unnecessary to reach either issue. Citing the Supreme Court's decision in Engquist, the Court stated that government activity which involves discretionary decision-making based on a number of objective criteria need not treat all persons equally. The Village's decisions over the years to build and extend its system were based on individual assessments made at those times. There is no clear standard that the Village used and that the Court could use to judge any departures therefrom. The Court concluded that it was doubtful that the residents' claim would survive the Engquist test. The Court went on, however, and concluded that the residents failed to establish an equal protection violation. First, they were unable to establish the existence of an appropriate comparator. Second, the cost of extending the system, the apparent lack of interest on the part of most residents, and the Village's desire to avoid competition with the private utility amounted to a rational basis for its conduct.

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AMERICAN BOAT COMPANY v. UNITED STATES OF AMERICA (October 1, 2009)

David Jump is a wealthy, St. Louis businessman with a variety of business interests. In 1996, he consulted with a Chicago attorney to develop an estate plan. The attorney created a family trust and reorganized many of Jump's businesses into limited partnerships. He also recommended a tax shelter, and provided the firm's opinion of its validity. A few years later, one of Jump’s towboats caused an accident that almost resulted in damages that could have exceeded his insurance coverage. He again sought advice from his Chicago lawyer, this time on how to limit his liability. The lawyer again designed and executed a restructuring of his companies. He again also recommended a series of tax shelter transactions. Beginning in 1999, Jump claimed substantial tax benefits. Over time, other lawyers and accountants became familiar with these transactions and raised no objections. The IRS eventually caught wind of these shelters and determined them to be illegal. It discovered the involvement of one of Jump's partnerships during its investigation and determined that the shelter was invalid. It issued a Notice of Final Partnership Administrative Adjustment, adjusting the partnership's basis of its towboats, and imposed an accuracy-related penalty of forty percent. On judicial review, the court agreed with the IRS that the transactions were invalid but held that the penalty should not have been imposed. The penalty can only be imposed if the partnership had no reasonable cause for its underpayment. The court found reasonable cause. The United States appeals the latter ruling.

In their opinion, Judges Bauer, Flaum and Kanne affirmed. The Court first addressed the issue of the district court's jurisdiction, because of a recent decision in the Court of Federal Claims holding that the reasonable cause exception relied on by the district court cannot be considered during a partnership-level proceeding, which that was. Although agreeing with the fundamental premise that a partner may not raise a partner-level defense at a partnership-level proceeding, the Court concluded that a partnership can raise reasonable cause on behalf of the partnership. Thus, the Court found that the district court had jurisdiction to consider the partnership's claims that it had reasonable cause for its position. On the merits, the Court stated that reasonable cause depends on all the facts and circumstances, including the taxpayer's efforts to properly assess its liability. The Court first rejected the government's position that it is always unreasonable to rely exclusively on a financial advisor who incorporates a tax shelter into a plan for restructuring. Considering the facts and circumstances, the Court concluded that the district court did not clearly err in finding reasonable cause: Jump sought advice from a reputable (at the time) attorney, he had no reason to believe the advice was wrong, the tax shelters were component parts of larger corporate restructurings, two reputable accounting firms raised no objections, and he had engaged in a similar transaction a few years earlier without IRS objection. Calling it a "close case," the Court found no clear error.

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MACH v. WILL COUNTY SHERIFF (September 1, 2009)

Michael Mach was a Will County Deputy Sheriff assigned to the traffic division. For years, he maintained a satisfactory performance record. That changed after 2003. Because of budget pressure, the department notified the deputies in the traffic division that they could be temporarily assigned to the patrol division. Mach and other deputies were not happy. He started acting out, failing to follow directives, disregarding instructions, and neglecting his duties. After reprimands and warnings, he was permanently transferred to the patrol division. Mach brought an action pursuant to the Age Discrimination in Employment Act (ADEA). In addition to his transfer, he stated five other grounds for his claim. In response to the defendants’ opening briefing on summary judgment, he abandoned all five of those other grounds. The court granted summary judgment to the Sheriff and also awarded fees of 5/6 of the costs of preparing the summary judgment motion, reflecting effort that went into attacking the "worthless" claims. Mach appeals.

In their opinion, Judges Bauer, Flaum and Kanne affirmed. On the merits, Mach relied on the direct method of proof, which required him to produce evidence that he was transferred because of his age. The Court noted an absolute lack of evidence in the record supporting any such inference. His poor job performance was well documented by the department. The only circumstantial evidence of age discrimination was one stray comment made by an individual who had no influence on the transfer decision. Mach's ADEA claim fails. With respect to the fee award, the Court noted a prior holding that ADEA does not preclude an award of fees to a prevailing defendant if a plaintiff litigates in bad faith. Here, the Court concluded that the district court did not abuse its discretion in ruling that Mach litigated the five claims in bad faith. The Court noted its belief that such sanctions would be rare -- here the district court explicitly held that the five claims were "worthless."

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MIDDLETON v. CITY OF CHICAGO (August 24, 2009)

From 1960 until 1989, Charles Middleton served in the Air Force. On two occasions in the early 1990s, he applied for positions with the City of Chicago. He was not hired for either position. In 2007, Middleton sued the City pursuant to the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). He alleged that the City refused to employ him on account of his military service. The district court applied the four year "catch-all" statute of limitations in 28 U.S.C. § 1658 (a) and dismissed his complaint. Middleton appeals.

In their opinion, Judges Kanne, Rovner and Wood affirmed. The Court considered not only the application of § 1658 (a) to the claim but also the provisions of the Veterans' Benefits Improvement Act (VBIA), enacted after the appeal. Section 1658 was enacted in 1990. Its purpose, said the Court, was to minimize the borrowing of state statutes of limitations for federal causes of action. It provided a four-year statute of limitations for any federal claim brought under a later-enacted statute, if the statute had no expressed limitations period. USERRA was enacted four years later and contained no expressed statute of limitations. The Court concluded, based on the plain meaning of the statute, that the four-year limitations applied. In doing so, it rejected the Middleton's arguments that: 1) the section did not apply because USERRA was simply an amendment of an earlier-enacted statute, and 2) the legislative history indicated Congress' intent that no statute of limitations apply. The Court turned its attention to the VBIA. The VBIA eliminates any limitations period for a USERRA cause of action. The Court noted the "well-established" rule that a statute should not be applied retroactively unless Congress' intent is clear. Nothing in the statute addresses retroactivity. The Court concluded that the statute should not be given retroactive effect. Finally, the court rejected Middleton's argument that the VBIA was merely a clarification of existing law.

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BENTZ v. CITY OF KENDALLVILLE (August 14, 2009)

The local police arrived at the home of Dr. Bernard Leonelli, responding to reports of a domestic dispute. An officer observed a large fire on the front lawn and was told by bystanders that a fight was taking place inside the home. The officer approached Leonelli, who was standing on his front porch, and asked to speak with him. Instead, Leonelli walked into the house, where the officer observed him reaching for something. The officer entered the house, arrested Leonelli and searched the premises for a possible victim of domestic abuse. Leonelli brought an action against the city under § 1983, alleging that both the arrest and the search were unreasonable and unlawful. The district court granted summary judgment to the defendants. Leonelli appealed -- but died before the appeal was heard. His personal representative seeks to continue the appeal on his behalf.

In their opinion, Judges Cudahy, Posner and Kanne granted the defendants’ motion to dismiss the appeal. Section 1983 is silent on whether a claim survives death. Instead, the Court stated, the state’s survival statute applies. A court must first characterize the § 1983 claim and decide which state tort is most analogous. With respect to the arrest claim, the Court noted that the plaintiff had to establish the fact of a seizure and its unreasonableness. The Court concluded that the closest Indiana tort was false imprisonment, the elements of which are almost identical to those for false arrest. Since an Indiana tort of false imprisonment does not survive the death of the plaintiff, neither does Leonelli's false arrest claim. With respect to the unlawful entry and search, the Court stated that the facts of the case were closely analogous to both a state trespass claim, which does survive, and a state invasion of privacy claim, which does not survive. The proper analysis, however, focuses on the elements of the federal claim, not the specific facts of the case. Looking at it from that perspective, the Court concluded that an expectation of privacy is the core of the unreasonable search claim. The federal claim is more analogous to invasion of privacy than it is to trespass. The claim does not survive.

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SCHUR v. L.A. WEIGHT LOSS CENTERS, INC. (August 14, 2009)

Pamela Hoppe, an Illinois citizen, joined a weight loss program at her local L.A. Weight Loss Center ("Center"). After just several months of diet and nutritional supplements, Hoppe died of acute liver hepatitis. Her estate filed suit in state court against the Center alleging a variety of state law claims. The Center removed the case to federal court on diversity grounds, where the parties conducted discovery for just over one year. The estate then amended its complaint, adding claims against two Center employees, both Illinois residents. The estate then moved to remand the case to state court because of the new lack of diversity. On the Center's motion, the court struck the amended complaint on the grounds that the new defendants were fraudulently joined. Later, the court granted summary judgment to the Center. The estate appeals.

In their opinion, Judges Bauer, Kanne and Sykes vacated and remanded. The Court addressed the jurisdictional issue first. It noted that 28 U.S.C § 1447(e) applies when a plaintiff seeks to join a non-diverse party that would eliminate subject matter jurisdiction. A district court has two options -- it can deny the joinder and keep the case or it can allow the joinder and remand the case. It should not do what the court did here – allow the joinder and keep the case. The Court then adopted a framework of factors a lower court should consider in exercising its discretion on joinder: the plaintiff's motive, the timeliness of the request, the harm to the plaintiff if denied, and other equitable considerations. Before addressing these factors, the Court “detoured” to address whether the district court had the authority to reverse the joinder decision, further complicated by the fact that a magistrate judge had granted the motion to amend. In the particular posture of this case, the Court concluded that the district court was permitted to reconsider the magistrate's order. Because the motion was granted as a routine matter without any indication of its jurisdictional significance, the Court joined several other courts in concluding that a district court may reconsider a prior joinder decision when it was unaware that joinder would defeat diversity. Finally, the Court proceeded to examine the lower court's exercise of its discretion. The lower court had relied on the doctrine of fraudulent joinder in striking the amended complaint. It found that it was unlikely that the estate could prevail against the individual defendants. The Court concluded that the district court misapplied Illinois law in reaching that conclusion. Although vicarious liability can result in employer liability for employees' misconduct when the acts were committed within the scope of employment, it does not affect the employees' direct liability. The Court found that it was error to conclude that it was unlikely for the state to succeed against the individual employees. With respect to the plaintiff’s delay in adding the individual employees, the Court acknowledged that the amendment followed a year of discovery but emphasized that the amendment came within a few months of the estate learning of each employee's role in the events prior to Hoppe's death. Thus, the Court concluded that the lower court abused its discretion in denying the remand. Since it had no jurisdiction, it should not have reached the merits and neither did the Court.

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

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

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

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MILWAUKEE DEPUTY SHERIFF'S ASSOCIATION v. CLARKE, JR. (July 21, 2009)

In mid-2005, possibly in response to public criticism of his use of police officers as escorts, Milwaukee County Sheriff Clarke posted a message on the department bulletin board: "If you are afraid or have lost your courage, you may go home, otherwise you will ruin the morale of others." Michael Schuh, a veteran police officer, was offended. He submitted a statement to the union newsletter: "If you are afraid or you have lost your courage and need two deputies and a sergeant to escort you every time you fly in and out of the airport and patrol deputies to drive by your house when you're out of town you should resign and go home! Then you would lift the morale of this whole department (a.k.a. office)." A few days later, Sheriff Clarke assigned Schuh to a newly-created patrol in the most dangerous part of the town -- in full uniform, without a partner, and without a car. At about the same time, Sheriff Clarke issued a revised departmental confidentiality policy. The policy required employees to keep "official agency business" confidential and not to speak on behalf of the department. Officer Schuh and the union brought suit, alleging violations of state law as well as First Amendment retaliation under § 1983. The suit also challenged the confidentiality policy as an unlawful prior restraint. The district court granted summary judgment to Sheriff Clarke on the federal claims. Schuh and the union appeal.

In their opinion, Judges Kanne, Rovner and Evans affirmed. The Court applied the three-step First Amendment retaliation analysis. The only step in dispute was whether Schuh's speech was constitutionally protected. To be protected, the speech must be of public concern. The Court considered the content, form and context of Schuh's statement. The Court noted that the form, a union newsletter, and the content, the Sheriff's abuse of department resources, could weigh in favor of constitutional protection. The context of the statement, however, led the Court in a different direction. The Court concluded that the context of the speech showed that it was a purely private matter. It did not focus on the fiscal repercussions of the Sheriff's conduct but rather on the personal impact of his original statement. Since the speech is not protected, Schuh's retaliation claim fails. With respect to the prior restraint claim, the Court first looked to whether the confidentiality policy applied to protected speech – i.e., the speech of a citizen on a matter of public concern. Since the policy on its face applied only to "official agency business," the Court concluded that it must apply only to speech related to an employee's professional duties. Since it did not regulate protected speech, it was not an unlawful prior restraint.

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TRADE FINANCE PARTNERS, LLC v. AAR CORP. (July 16, 2009)

Trade Finance Partners ("TFP") is, in essence, a broker that arranges business relationships for its clients. It charges a fee on any business it secures. AAR, an aviation support company, was a TFP client. The companies began working together in late 2004, and entered into a contract in January 2005. The contract allowed TFP to secure business from any "target accounts" which were identified by AAR in a written Request for Information ("RFI"). Just prior to and separate from its relationship with TFP, AAR responded to a Northwest Airlines Request for Proposal for an aircraft maintenance and repair contract. TFP alleges that AAR identified Northwest as a target account, even though they did not complete an RFI. Northwest and TFP did communicate in early 2005. In February, Northwest reissued its Request for Proposal and AAR updated its submission, all without the knowledge or involvement of TFP. Northwest selected AAR for the maintenance contract. TFP filed suit, alleging that its efforts caused Northwest to award the contract to AAR. The district court granted summary judgment to AAR. TFP appeals.

In their opinion, Judges Kanne, Wood and Sykes affirmed. The Court rejected each link in TFP's argument chain: a) the initial overtures between TFP and Northwest related only to a landing gear proposal and are not relevant to the maintenance contract inquiry, b) the record does not support TFP's assertion that there was a “barrier” of some sort between Northwest and AAR before its intervention, c) the record evidence does support the conclusion that Northwest rejected TFP's business model and independently awarded the maintenance contract to AAR, and d) the record does not support TFP's claims that it was responsible for Northwest's visit to AAR's facility or that the visit was relevant to the award of the contract. The Court conceded that it must construe the evidence and its inferences in TFP's favor -- but it found nothing but speculation. The Court also rejected TFP's claims that AAR's failure to complete an RFI was a breach of the contract, that AAR's intention not to fulfill its promise constituted fraud, or that it could recover in quantum meruit.

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APEX DIGITAL, INC. V. SEARS, ROEBUCK & COMPANY (July 16, 2009)

Apex brought a breach of contract claim against Sears, alleging Sears owed it in excess of $80 million. Sears moved to dismiss for a lack of subject matter jurisdiction. It asserted that Apex lacked standing because it had assigned away its rights in the Sears receivables. Sears attached to its motion a letter from Apex attesting to that fact. When Apex offered no response, the district court granted Sears' motion. Apex appeals.

In their opinion, Judges Posner, Ripple and Kanne affirmed. The plaintiff, said the Court, bears the burden of establishing standing, an essential component of any case. The Court agreed with Apex that a sufficient standing allegation is enough to overcome a facial challenge. With respect to a factual challenge, however, where the challenger accepts the sufficiency but challenges the truth of the allegation, the district court is permitted to look beyond the complaint and view any evidence submitted. Because Apex failed to proffer any evidence to rebut its own statement in the letter offered by Sears, the district court did not err in dismissing the complaint.

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STEPHENS v. ERICKSON (June 30, 2009)

Lesley Stephens, an African American, has worked for the City of Chicago since 1979, except for a disability leave from 1988-1993. He has been a truck driver, an acting foreman, and an accident adjuster, all within the Department of Fleet Management. He filed a lawsuit against the City in 1997, alleging that it engaged in racially discriminatory hiring and promotion practices. Shortly after he settled the lawsuit in 2004, Stephens applied for four promotions. He was passed over each time. He again brought suit, alleging violations of § 1981 and Title VII. He claims that the City retaliated against him for his earlier lawsuit and his complaints of discrimination. The district court granted summary judgment to the City. Stephens appeals.

In their opinion, Judges Kanne, Wood and Sykes affirmed. The Court stated that it would apply the same elements to the claims under § 1981 and Title VII. Stephens chose to establish his retaliation claim under the direct method of proof. The principal issue on appeal was the causal connection between Stephens' protected activity and the City's failure to promote him. The Court set out the promotion procedure in detail – and stated that Stephens produced no evidence that any of the several employees who interviewed him for the promotions even knew of the earlier lawsuit or his prior complaints of discrimination. The Court noted that in each case, the City interviewed several applicants, rated the applicants on the same criteria, and recommended the applicant with the highest score. The Court also rejected Stephens' argument that the head of the department retaliated against him by pre-selecting his preferred candidate by choosing him for an "acting" position, leading the interviewers to a predetermined selection. Nothing in the record linked the department head to any of the interviews or any of the interviewers. The Court concluded that Stephens simply had not produced evidence sufficient to create an inference of retaliation. The Court also concluded that the retaliation allegations other than failure to promote (menial job assignments, intimidation, segregation, etc.) would not dissuade a reasonable employee from making a charge of discrimination and were therefore not "materially adverse" and actionable.

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 UNITED FOOD AND COMMERCIAL WORKERS v. ILLINOIS-AMERICAN WATER COMPANY (June 26, 2009)

Glenn Williams was a wastewater treatment operator for Illinois-American Water Company ("IAWC"). IAWC discovered that Williams was operating without a required Illinois EPA license. Because it was Williams' second offense, it was punishable by termination. Instead of firing Williams, however, IAWC offered him a Last Chance Agreement ("LCA"). Under the LCA, Williams was suspended without pay for 30 days, he was required to obtain his license within six months, and he was required to repay the extra compensation he received as a result of IAWC's belief that he was licensed properly. The LCA also provided that failure to comply would result in Williams' immediate termination and any disputes regarding the agreement would be resolved through the collective bargaining agreement’s arbitration procedure. The United Food and Commercial Workers Union, which represented Williams, filed a grievance contesting the LCA's validity. When Williams failed to make repayment arrangements, IAWC terminated his employment. The union filed a second grievance. The grievances were consolidated and brought before an arbitrator. The arbitrator ruled against the union on the validity of the LCA but ordered Williams reinstated. He concluded that the termination was improper because of the pending, good faith challenge to the LCA itself. On review, the district court confirmed the arbitration award. The union appeals.

In their opinion, Judges Posner, Kanne and Wood affirmed. The Court identified its limited role in reviewing arbitrator's awards. As long as an arbitrator bases his decision on an interpretation of the agreement, the court will enforce the award. Here, the arbitrator confronted a situation that he thought was not covered by the agreement. One provision gave IAWC the absolute right to terminate Williams' employment. Another provision gave the union the right to challenge the validity of the LCA. The arbitrator concluded that the agreement contained an implied term – that Williams' employment could not be terminated during the pendency of a good faith grievance over the validity of the agreement itself. Since his award was based on an interpretation of the agreement, the Court affirmed.

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INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 150 v. WARD (April 16, 2009)

Local 150 represents over 22,000 union members in Illinois, Indiana and Iowa. Joseph Ward was its treasurer 1986 until 2007. In 1994, the president of the local asked Ward to purchase property adjacent to the local’s headquarters. Instead of purchasing the property for the union, however, Ward participated in the purchase of the property by an investment group. The group sold the parcel several years later at a substantial profit. Local 150 filed a complaint against Ward, alleging violations of § 501 of the Labor-Management and Reporting Disclosure Act of 1959 (the “Act”) and breaches of fiduciary duty. The district court dismissed the complaint, concluding that § 501 does not allow a labor union to bring a private cause of action. Local 150 appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The Court started with the language of the Act. Section 501(a) imposes fiduciary duties, including a duty of loyalty, on a union’s officers and agents. Section 501(b) creates a federal cause of action for individual union members. Damages recovered under § 501 (b) inure to the benefit of the union itself. Before a union member may sue, she must make a demand that the union take appropriate action and then must receive the court’s permission, on a showing of good cause, to proceed. The Act is silent on a union’s ability to bring an action. On that threshold question, the Court first found no express cause of action under a plain reading of the Act. With respect to whether the Act contains an implied cause of action, the Court noted a split of authority between the Ninth in Eleventh Circuits. Relying on the Supreme Court’s holding in Alexander, the Court concluded that its task was to determine whether Congress intended to create both a private Right and a private remedy. The Court's analysis of the text and structure of § 501 led it to conclude that Congress did intend to create both a federal right and a federal remedy for a union.

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LEWIS v. CITGO PETROLEUM CORP. (April 6, 2009)

Michael Lewis and Tammy Livingston, employees of Philip Services Corporation, were performing maintenance work at a CITGO refinery when they were allegedly exposed to a hazardous gas. Emergency personnel responded, they went to the hospital, they received a full medical examination, they were released, and they returned to work the next day. Several years later, Lewis and Livingston asserted common-law negligence claims against CITGO. Livingston also asserted a negligent infliction of emotional distress claim. Their claims were supported by two physicians -- -- Dr. Jordan Fink, a doctor of internal medicine, and Dr. Norman Kohn, a psychiatrist and neurologist. The court granted summary judgment to CITGO, holding that the plaintiffs had failed to satisfy their burden of demonstrating the reliability of the expert testimony. Lewis and Livingston appeal.

In their opinion, Judges Ripple, Kanne and Tinder affirmed. The Court first addressed the question of whether Livingston was a "bystander" or a "direct victim" for purposes of the emotional distress claim under Illinois law. Concluding that she was a "direct victim," the Court noted that the plaintiffs' burden on both the common-law negligence and negligent infliction claims were to demonstrate a duty on the part of defendant and a breach that proximately caused the injury. The Court turned to causation and the lower court’s exclusion of the expert testimony. The Court approved the lower court’s application of Rule 702 and Daubert. It is the burden of the proponent, said the Court, to establish both the qualifications and the methodology of its experts. CITGO challenged Dr. Fink on both qualifications and methodology -- it challenged Dr. Kohn only on methodology. Although the Court recited some of the problems relating to the experts, it ultimately relied on the fact that plaintiffs failed to advance any substantive arguments in support of their experts’ qualifications. The Court concluded that the lower court was well within its discretion to exclude the evidence. Without this testimony, neither Lewis nor Livingston could provide evidence of causation with respect to the common law negligence claims. With respect to Livingston's claim for negligent infliction of emotional distress, however, one of CITGO's own experts did testify that Livingston experienced "relatively mild" anxiety as a result of the exposure. The Court agreed with the lower court’s conclusion that the injury did not reach the threshold of severity to be compensable and was properly dismissed.

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HAMPTON v. FORD MOTOR COMPANY (April 6, 2009)

Collette Hampton worked the night shift Ford's Chicago assembly plant. In the summer of 2004, she allegedly experienced sexual harassment and discrimination on her job. She filed a charge of discrimination in late 2005. While awaiting a resolution of her charge, she learned that Ford was offering a buyout package to eligible employees. The program was system wide, with the goal of reducing Ford's hourly workforce. The buyout came with a lump sum payment of $100,000 in exchange for a waiver of "all rights or claims" against Ford and a promise "not to institute any proceedings of any kind" against Ford. Hampton, knowing that she was scheduled to be laid off in 2006 anyway, applied for the package. She received a written description of the program, was invited to an informational meeting, and was instructed to consult with the company or her union if she had any questions. Hampton received and cashed Ford's check and left Ford's employ. Meanwhile, however, after she applied for the program and signed the release but before she received the check, she brought an action against Ford, alleging sexual discrimination and harassment in violation of Title VII. The district court granted summary judgment to Ford, holding that Hampton had released her Title VII claims as a matter of law. Hampton appeals.

In their opinion, Judges Kanne, Evans and sites affirmed. The Court first addressed Hampton’s argument that she never intended to waive her Title VII claims. The Court found no ambiguity in the waiver language. Relying on the principle, that an unambiguous contract must be enforced as written, the Court concluded that both the waiver language and the covenant language covered and barred her Title VII claims. Next, the Court addressed Hampton’s argument that her waiver was not knowing and voluntary. The Court agreed that the release of a federal right must be knowing and voluntary but concluded that Hampton failed to present enough evidence in support of her assertion. The Court relied on Hampton’s education, the clarity of the document, the time she had to consider it, her concurrent representation by counsel and the explanations provided or offered in concluding that her waiver was knowing and voluntary.

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THE CORNUCOPIA INSTITUTE v. UNITED STATES DEPARTMENT OF AGRICULTURE (March 26, 2009)

The Cornucopia Institute submitted three separate FOIA requests to the United States Department of Agriculture ("USDA"). When the USDA failed to respond within the required time period, Cornucopia filed suit for injunctive relief, a writ of mandamus and attorneys fees. While the suit was pending, the USDA produced the responsive documents. The court dismissed the case as moot. The court also denied the request for fees on the grounds that Cornucopia had not "substantially prevailed." Cornucopia appeals.

In their opinion, Judges Manion, Kanne and Kendall affirmed. First, the Court rejected Cornucopia's argument that the lower court’s ability to still grant declaratory relief renders the case not moot. Declaratory relief is appropriate only when the ruling would have an impact on the parties. Cornucopia has failed to make such a showing. The Court concluded that a case must be dismissed when it is impossible for the court to grant any effectual relief – as is the case here.

With respect to attorneys’ fees, the district court concluded that Cornucopia was not a prevailing party under Buckhannon because it obtained no judicial relief. The Court pointed out that Buckhannon’s requirement of judicial relief was eliminated in the OPEN Government Act of 2007 (enacted while the appeal was pending). Because Cornucopia waived any argument that the Act applies retroactively, however, the Court concluded that the district court acted within its discretion in denying the request for fees.

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MALONE v. RELIASTAR LIFE INSURANCE CO. (March 12, 2009)

Gordon Beeler disappeared in January of 1998, leaving behind a wife of 30 years, four children, a business partner and $2.6 million in life insurance policies. A trust was the beneficiary of the policies. The insurance companies denied benefits in 2003, and again in 2005, citing evidence that Beeler may have been alive. The beneficiaries brought suit against the insurance companies, seeking death benefits and punitive damages. The district court granted summary judgment to the insurance companies on the punitive damages claim. The breach of contract claim was tried to a jury. The trustee presented evidence that Beeler had been missing since the date of his disappearance, that the family had conducted numerous investigations into his disappearance, and that he had not been in communication with his family or friends since the day of his disappearance. The insurance companies presented evidence of a troubled family situation, a strained marriage, and witnesses who claimed to have seen Beeler after the date of his disappearance. The jury returned a verdict in favor of the defendants. The district court denied the trustee’s Motion for a New Trial. The trustee appeals.

In their opinion, Judges Kanne, Williams and Sykes affirmed in part, vacated in part and remanded for a new trial. On the punitive damages issue, the Court concluded that there was a good-faith dispute over coverage. Under Indiana law, a good-faith coverage dispute precludes punitive damages. The Court affirmed the district court. With respect to the death benefits claims, however, the Court found that the district court had erred. In Indiana, a claimant may prove an insured’s death in two different ways. It can present evidence, direct or circumstantial, that the insured is, in fact, dead. Alternatively, it can seek a common law presumption of death by showing that the individual has been "inexplicably absent" for seven years, that the individual has not communicated with close family and friends and that the individual cannot be found despite diligent search. That presumption can be rebutted by proof of facts inconsistent with the presumption. The Court found two errors in the district court's approach to the trial. First, the district court erred in instructing the jury that "inexplicably absent" meant that Beeler’s absence was "unexplained by circumstances other than those suggesting death." The Court concluded that the presumption arises when the plaintiff proves a seven-year absence, a lack of communication, and an inability after diligent search to find the person. Any evidence offered to explain the disappearance is relevant only to rebutting the presumption. Second, the Court found error in the special verdict form. The jury was asked three questions: whether the plaintiff raised the presumption of death, whether the defendants rebutted the presumption of death, and whether plaintiff proved that Beeler was, in fact, dead. The special verdict form instructed the jury to conclude its deliberations if it answered no to the first question. The jury did answer no to the first question, it did conclude its deliberations, and it never considered whether plaintiff proved that Beeler was, in fact, that. The Court conceded that either of the two errors, standing alone, might not have required a reversal. Considered together, however, they amounted to reversible error.

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HANSEN v. BOARD OF TRUSTEES (December 23, 2008)

Hamilton Southeastern High School (“HSHS”) hired Dmitri Alano as a teacher and assistant band director in 1988. Prior to his hiring, the Hamilton Southeastern School Corporation (“HSSC”) conducted its normal pre-hire process, which included an application and questionnaire, interviews, reference checks, and license and background checks. Alano began a sexual relationship with a student in 2000. The student concealed the relationship from her family and friends. A couple of years after the relationship ended, the student revealed the relationship to her therapist. Her parents and the police were informed. HSHS suspended Alano; he ultimately resigned. The student’s parents (the Hansens) brought federal claims under Title IX and 42 U.S.C. § 1983 and several state law claims against Alano and HSSC. The court granted summary judgment on two of the seven counts with respect to Alano. The court granted summary judgment on all seven counts with respect to HSSC and entered a Rule 54 (b) final judgment. The Hansens appeal the dismissal of the Title IX claim and the state law claims.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Tinder affirmed. The Court first addressed the Title IX claim. In order for the Hansens to establish a Title IX claim against HSSC for Alano’s conduct, it must prove that an official with authority to adopt corrective measures either had actual knowledge of the teacher’s misconduct or was deliberately indifferent. The Court concluded that the evidence did not establish that any HSSC official had such knowledge. The Court next rejected the Hansens’ claim that the district court should have declined to exercise jurisdiction over the state law claims once it had dismissed the federal claims. The Court found that the district court properly exercised jurisdiction in the first place – the claims are all based on a common set of facts. The court’s discretion under 28 U.S.C. § 1367(c) was never triggered since it maintained jurisdiction over the federal claim against Alano. Even if it had, the lower court considered a balance of the proper factors (judicial economy, convenience, fairness, comity).

The Court considered the state law claims in two categories: direct claims against HSSC for its own negligence and respondeat superior claims under which HSSC could be responsible for Alano’s conduct. On the former, the Court noted that Indiana does recognize a cause of action for the negligent hiring, supervision or retention of an employee. Although the Court noted the confusion over whether Indiana applies an “actual knowledge” or a “knew or should have known” standard, it did not matter. Hansen failed to satisfy even the lesser standard. On the respondeat superior claims, the Court stated that HSSC would be responsible for the tortious acts of Alano if they were committed within the scope of his employment. Indiana courts have held that an employee’s sexual misconduct is within the scope of his employment only when the employment itself involves extensive physical contact. Alano’s duties did not involve any physical contact. The respondeat superior claims must fail as well. Finally, the Court held that Indiana does not recognize a non-delegable duty for the safekeeping of its students.

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (December 15, 2008)

Juliette Low founded the Girl Scouts of the United States of America (“GSUSA”) in 1912. GSUSA is run by a national council and its board of directors. In its almost 100 years of existence, GSUSA has developed a large network of local girl scout councils. GSUSA first chartered Girl Scouts of Manitou (“Manitou”) as a council in 1950. As of 2005, there were over 300 local councils. Each council has a charter issued by GSUSA that defines the relationship between the two and grants the council the right to maintain scouting throughout its jurisdiction. In 2005, GSUSA announced a plan to consolidate councils. It planned to reduce the number of councils to just over one hundred. Each council would be larger and, GSUSA hoped, more efficient. The plan would have required Manitou to merge 60% of its territory with six other nearby councils and cede 40% of its territory to two other councils. Manitou decided not to go along. It filed suit in February 2008 against GSUSA. It alleged breach of contract, tortious interference and a violation of the Wisconsin Fair Dealership Law. It sought to permanently enjoin GSUSA from altering its territory. The district court denied Manitou’s request for a preliminary injunction without a hearing. The court held that Manitou had failed to demonstrate that it would suffer irreparable harm in the absence of the injunction. Manitou appeals.

In their opinion, Judges Posner, Kanne and Tinder reversed and entered the requested order enjoining GSUSA. The Court led off with the familiar two-phase test for a preliminary injunction. A movant must demonstrate: a) irreparable harm, b) inadequate legal remedy, and c) a likelihood of success. The movant who succeeds in that first phase enters a second phase in which the court balances the injury to the plaintiff, its likelihood of success, the possible injury to the defendant if the injunction issues, and the public interest. The court uses a balancing test in which the greater the plaintiff’s likelihood of success, the less the balance of harm needs to be in its favor. Applying that test, the Court first addressed irreparable harm, the only of the first-phase factors addressed by the district court. The Court disagreed with the court below. It found that Manitou’s loss of jurisdiction would severely affect its ability to generate revenue and harm its goodwill. That harm would not be rectified if a final judgment were entered in its favor and the loss of jurisdiction reversed. The Court also disagreed with the court below on the application of the Wisconsin Fair Dealership Law, under which a “dealer” in Manitou’s circumstances enjoys a statutory presumption of irreparable harm. The Court found that Manitou fit within the statutory definition of “dealer” in the act.

Having found that Manitou established irreparable harm and also noting that the record contained sufficient information to address the rest of the two-phase analysis without remand, the Court proceeded to do so. The Court found that the timing of and difficulty in calculating a damages award established that Manitou’s legal remedies were inadequate. On the likelihood of success factor, the Court noted that it only had to find a “better than negligible” chance of success to satisfy this prong. The Court evaluated only the Wisconsin Fair Dealership Law claim and found that Manitou satisfied that minimal standard.

In addressing the balancing portion of the test, the Court found a “drastic imbalance” in favor of Manitou. The Court noted that the national GSUSA program to consolidate regions was not even scheduled to be completed for a year. Any delay in the Wisconsin part of that plan would not lead to any harm to GSUSA. In addition, any harm to GSUSA could be rectified later. The Court did not feel the need to conduct a deeper analysis of Manitou’s likelihood to succeed given the imbalance of the harm.

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