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

UNITED STATES v. THOUVENOT, WADE & MOERSCHEN (February 18, 2010)

The Equal Access to Justice Act allows a party that prevails against the United States in litigation to recover its attorneys' fees unless the position of the United States is found to be "substantially justified." Three cases before the Court allowed it to address that standard. In the first, the United States charged an apartment complex site engineer with violating the Federal Housing Act. The trial court denied defendant's motion for summary judgment and its motions for judgment as a matter of law. After the jury returned a defense verdict, however, the court awarded fees to the defendant. Because the defendant's insurer paid for much of its defense, the insurer would receive much of the award. The United States appeals. In the second case, the court affirmed the denial of a Social Security claimant's application for benefits. After the Seventh Circuit reversed and remanded, concluding that a crucial consultant's opinion was entitled to no weight, the court denied an award of fees. The claimant appeals. In the third case, the district court reversed the administrative denial of Social Security benefits but denied the claimant's application for fees. The basis for the reversal was the administrative law judge's possible mischaracterization of some testimony and failure to fully explain the connection between the claimant's condition and his ability to work. The claimant appeals.

In their opinion, Judges Posner, Flaum, and Sykes reversed, reversed, and affirmed. The Court first noted that "substantially justified" was not defined in the statute nor, in their view, was its meaning self-evident. Relying on the title of the statute and its limited application only to persons of lesser means, the Court concluded that the government's position need not be frivolous to justify an award of fees. The Court identified a threshold between frivolous and meritorious, at which a case has a reasonable basis in law and fact, that the United States must meet to be "substantially justified." Applying that standard to the first case, the Court held that there was a presumption that the United States’ position is substantially justified if it survives summary judgment. Just because the jury ultimately decided in favor of the defendant does not mean that the government fell short of its threshold. Although the Court reversed the award of fees, it decided to provide guidance to the lower courts on the additional issue of the impact of a liability insurer on an award of fees. In its view, the Act should not be applied differently if a party otherwise entitled to a fee award his had some of its fees paid by its insuror. In the second case, the Court concluded that the lower court was wrong in denying a fee award. Even though the lower court was originally convinced of the merits of the government's position, the court must be guided by the appellate opinion. If an appellate court reverses in a case it considers a close call, the fact that the lower court was convinced of the merits may support a substantial justification finding. Here, however, the Court made it clear in its earlier opinion that the government's position was not justified. Finally, in the third case, the district court had reversed an administrative denial of benefits but refused to award fees. Like the prior case's "close call" reference, the Court concluded that the lower court was well within its discretion to reverse a denial of benefits but to conclude that the position taken was "substantially justified."

• Email This
• Print
• Comments
• Trackbacks

THOROGOOD v. SEARS, ROEBUCK & CO. (February 12, 2010)

Stephen Thorogood filed a state court class-action on behalf of the purchasers of stainless steel dryers in multiple states. He alleged that the defendant’s representation that the dryers were made of stainless steel violated the consumer protection acts of those states. The defendant removed the case to federal court under the Class Action Fairness Act (CAFA). Although the district court certified a class, the Seventh Circuit reversed and ordered the class decertified (intheiropinion.com post). The Court thought the case was not only a weak candidate for class certification, but also flimsy on its own merits. On remand, the defendant made an offer of judgment, inclusive of attorneys fees, of $20,000. Finding that that offer exceeded plaintiff's maximum recovery under state law of $3,000 and therefore the amount in controversy, the district court dismissed the case as moot. Thorogood appeals.

In their opinion, Judges Posner, Kanne, and Evans affirmed. The Court first rejected plaintiff's argument that the case should have been remanded upon class decertification, relying upon its decision in Cunningham Charter (intheiropinion.com post) just three weeks earlier. Then, the Court rejected the plaintiff's argument that the case was not moot because of his entitlement to significant attorneys’ fees. First, an award of fees for value conferred beyond the relief obtained must generally be relief ordered by the court. Second, the court was within its discretion in deciding that no fees were warranted. Finally, the Court noted that most of the fees were incurred pursuing the failed class action, not the $3,000 individual action.

• Email This
• Print
• Comments
• Trackbacks

MIDWEST TITLE LOANS v. MILLS (January 28, 2010)

Midwest Title Loans is a "title lender." Title loans are high-cost, high-risk loans. Car owners, generally from the lower income segment of the population, pay triple digit interest rates to borrow against their car titles. Midwest is located in Illinois but loaned to Indiana residents. All the loans were made in-person in Illinois. Midwest did advertise in Indiana and, when necessary, executed repossessions in Indiana. The State of Indiana considered Midwest's practices predatory. In 2007, it amended its Uniform Consumer Credit Code to provide the a loan is deemed to occur in Indiana if an Indiana resident enters into such loan with an out-of-state company that advertised or solicited in Indiana. Once a loan is deemed to occur in Indiana, the lender is subject to the provisions of the code, including interest rate caps and license requirements. Indiana advised Midwest of this amendment in August of 2007. Midwest was not licensed in Indiana and its products exceeded the interest rate cap. Midwest brought suit under §1983, alleging that the amendment violated the commerce clause. The district court permanently enjoined application of the amendment. Indiana appeals.

In their opinion, Judges Posner and Flaum and District Judge Der-Yeghiayan affirmed. The Court noted that the commerce clause of the Constitution has been interpreted to preclude states from erecting barriers to interstate trade. The clause is frequently applied when a state legislates in favor of its in-state businesses. Although Indiana is not discriminating in favor of its local business, that does not end the inquiry. First, a non-discriminatory statute that protects a legitimate local interest will be upheld unless the effects on interstate commerce are clearly excessive as compared to the local benefits. But second, a non-discriminatory statute that actually regulates out-of-state activities will not be upheld regardless of the balancing of the local interest. The Court concluded that out-of-state regulation was present here. Every Midwest loan was made in Illinois by a check drawn on an Illinois Bank, title was transferred in Illinois, and payments were received in Illinois. The facts that the proceeds were probably spent in Indiana, that Midwest advertised in Indiana, and that the collateral was generally located in Indiana did not change the Court’s conclusion.

• Email This
• Print
• Comments
• Trackbacks

CUNNINGHAM CHARTER CORP. v. LEARJET (January 22, 2010)

Cunningham Charter Corp. brought a breach of warranty and products liability class action against Learjet in state court. Learjet removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After the district court denied class certification for failure to satisfy the requirements of Rule 23, it remanded the case to state court. The district court concluded that the denial of certification deprived the court of federal jurisdiction under CAFA. Learjet sought leave to appeal.

In their opinion, Judges Posner, Coffey, and Flaum granted leave to appeal and reversed and remanded. CAFA, said the Court, grants federal jurisdiction to certain class actions. A class action is defined as "any civil action filed under rule 23." The statute also specifically provides that it applies before or after a class is certified. Based on these and other provisions of CAFA, as well as the principles that jurisdiction is determined at the time of filing and is generally not affected by later developments, the Court concluded that CAFA jurisdiction does not depend on class certification.
 

• Email This
• Print
• Comments
• Trackbacks

CARR v. TILLERY (January 12, 2010)

Rex Carr was a lawyer in southern Illinois. He and his partners had several agreements concerning the allocation of fees earned by the firm. The agreements continued in effect after the dissolution of the firm in 2003. Significant disputes arose, and a host of lawsuits were filed, with respect to those fees. A Memorandum of Understanding (MOU) was agreed to in 2004. It was meant to control the distribution of all fees, past and future, among the partners. Notwithstanding an agreement to dismiss all pending cases, Carr actually amended a counterclaim in one of the pending actions to assert that he had been fraudulently induced to enter into the MOU. The claim was eventually dismissed and the dismissal was affirmed. While the appeal was pending, Carr brought four separate suits in state court, then brought this federal case, and then voluntarily dismissed the state cases. He brought the federal case under RICO, repeating many of the allegations of the earlier suits, including the fraudulent inducement claim. The district court dismissed the suit for failure to state a claim. Carr appeals. The defendants cross-appeal from the court's denial of their motion for sanctions.

In their opinion, Judges Posner, Ripple, and Wood affirmed in part and vacated and remanded in part. On the merits, the Court disagreed with the court below that all the claims were barred by the doctrine of res judicata. The complaint contains at least one claim that postdates the earlier dismissal. The Court held that the claims were barred, however, by Illinois' "one refiling" rule. Under that rule, a plaintiff who voluntarily dismisses a complaint may start a new action within one year or the remaining period of limitations. Illinois courts have held the rule to mean that a plaintiff may commence only one new action after a voluntary dismissal. Here, Carr filed four lawsuits in Illinois before he filed the federal lawsuit. He dismissed all of the state court suits soon after he filed a federal suit. Although each of the state court suits was based on a different theory of liability or sought different relief, they all arose from the same events. That is true even for the claim postdating the earlier dismissal, a claim that the defendants violated the MOU. The Court next considered whether the RICO claim, on which federal jurisdiction was based, was so weak so as to not support jurisdiction. Such a conclusion would lead the Court to dismiss for lack of jurisdiction rather than on the merits. Although the Court termed the claimant a "complete nonstarter," since it was so on the basis of an affirmative defense, the Court concluded that a dismissal on the merits with prejudice was more appropriate. On the cross-appeal, the Court found the denial of sanctions erroneous. Although the defendants based their motion on § 1927, which does not apply to misconduct prior to the filing of the federal complaint, the Court saw no reason why the district court could not invoke its inherent, common law power to punish attorney misconduct. The filing of multiple lawsuits, including the present frivolous one, was ground enough for the Court to direct the district court to assess a proper sanction and consider enjoining Carr from conducting further related litigation.

• Email This
• Print
• Comments
• Trackbacks

WORLD OUTREACH CONFERENCE CENTER v. CITY OF CHICAGO (December 30, 2009)

In Chicago, the World Outreach Conference Center ("WOCC") operates a community center. It is a Christian organization, one of whose goals is to assist and provide relief to the needy and suffering. WOCC purchased the center in 2005 from the YMCA. Although the land was rezoned several years ago, YMCA's operations were a legal nonconforming use. WOCC wants to operate the building by renting out its many apartments – just as the YMCA did. The Center did need a single-room-occupancy (SRO) license to operate. Apparently because an alderman had wanted a financial backer to acquire the property, the City refused to grant the license. WOCC brought suit under the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA), challenging the City's refusal to grant the license. Although the City eventually did grant the license, the suit continued with its claim for damages. The court dismissed the complaint. WOCC appeals.

In Peoria, the Trinity Evangelical Lutheran Church purchased property adjacent to its church. It wanted to raze the building in order to build a family center. The City, in response to a neighborhood group’s application, designated the building a landmark and blocked the demolition. Trinity brought suit under RLUIPA, alleging that the landmark designation imposed a substantial burden on religious activities. The court granted summary judgment to Peoria. Trinity appeals. 

In their opinion (in these consolidated cases), Judges Cudahy, Posner and Rovner affirmed in part and reversed in part in Chicago and affirmed in Peoria. RLUIPA prohibits government land-use regulation that imposes a substantial burden on religious activities unless it is in support of a compelling government interest and is the least restrictive means to the end. It also prohibits non-equal or discriminatory treatment directed at a religious assembly through land-use regulation. The Court first addressed and rejected Chicago’s argument that RLUIPA exceeds Congress’ authority, relying on the enforcement clause of the Fourteenth Amendment as well as Congress’ power to regulate interstate commerce. On the merits in WOCC, the Court concluded that the dismissal of WOCC’s substantial-burden claim was erroneous. WOCC was entitled to operate without the special use permit demanded by the City and the City had no basis for refusing the SRO license. The burden was substantial and there was no compelling government interest. The Court also: a) affirmed the dismissal of the discrimination claim (WOCC was badly treated – but it had nothing to do with religion), b) reversed the dismissal of the equal protection claim (on a class-of-one theory), and c) affirmed the dismissal of the damages claim for violation of the Chicago Zoning Ordinance.On the merits in Peoria, the Court concluded that the burden imposed on Trinity did not reach “substantial.” The property had value and could be sold and there are suitable alternatives for the family center.

• Email This
• Print
• Comments
• Trackbacks

NIGHTINGALE HOME HEALTHCARE v. ANODYNE THERAPY (December 21, 2009)

Anodyne Therapy manufactures and sells infrared lamps designed to improve circulation. The FDA approved it for that purpose. But Anodyne allegedly marketed the lamps as a treatment for peripheral neuropathy, which the FDA never approved. Nightingale purchased several of the lamps. The FDA sent Anodyne a warning letter about their marketing claims. Several months later, Nightingale stopped using the lamps, returned them to Anodyne with a demand for a refund, but then replaced them with almost identical devices. Nightingale brought a fraud case in state court. Anodyne removed the case to federal court on diversity jurisdiction grounds. Nightingale then added a federal Lanham Act claim. The court granted summary judgment to Anodyne on the Lanham Act claim, and later granted summary judgment to Anodyne on the fraud claim. The court relied on a contractual disclaimer of warranties as well as Nightingale’s failure to establish proof of damages. Nightingale appeals.

In their opinion, Judges Posner, Kanne and Rovner affirmed. On the merits, the Court disagreed with the warranty holding. It concluded that the only contractual limitation of liability related to a breach of warranty claim – not, as here, a fraud claim. The Court agreed with the district court, however, on the damages holding. Nightingale replaced the lamps with a virtually identical product. Both products served the same purpose, performed comparably and carried similar FDA approvals. The replacement of the lamps did not result in any damage to Nightingale.

The lack of any damage not only doomed the case on the merits – it showed that the jurisdictional threshold for diversity jurisdiction was not met. Ordinarily, the Court concluded, the lack of a good faith basis for meeting the threshold would result in a case being dismissed for lack of jurisdiction, even at a late stage of the case. Here, however, the fact that Nightingale added a federal claim after removal brought the case within the court’s federal question jurisdiction. The state claims were covered by supplemental jurisdiction. Even though the federal claim was later dismissed, the court had discretion to retain the state claims.

• Email This
• Print
• Comments
• Trackbacks

COLLINS v. HERITAGE WINE CELLARS (December 21, 2009)

Heritage Wine Cellars is a wholesale wine importer and distributor. It buys wines outside of Illinois (and frequently outside of the country) and brings it to Illinois for sale to retail stores. Although it controls the wine and its shipment during the entire journey, Heritage retains independent contractor carriers to bring the wine into the state. Within Illinois, it uses its own trucks and drivers to distribute the wine. Anthony Collins is one of those truck drivers employed by Heritage. He and other drivers brought an action against Heritage pursuant to the Fair Labor Standards Act (FLSA). They allege that Heritage failed to pay required overtime. The district court ruled that Collins transported the wine in interstate commerce and Heritage was therefore exempt from the overtime provisions of the FLSA. Collins appeals.

In their opinion, Judges Posner, Manion and Tinder affirmed. The Court critically noted the jurisprudence surrounding the "interstate commerce" issue. It found no fewer than seventeen "unweighted technical criteria" in the cases and regulations. Although admitting that some cases may require a more complex analysis, the Court found four criteria that allowed it to dispose of the case. Those criteria were: a) although Heritage did not have a customer for all of the wine it imported, its volume of imports was determined by customer demand, b) Heritage did not process or otherwise modify the wine at its warehouse, c) Heritage maintained control over the wine, and d) the shipper bore the ultimate responsibility for transportation charges. Under those circumstances, concluded the Court, the wholly intrastate leg of a shipment is considered to be part of interstate commerce.

• Email This
• Print
• Comments
• Trackbacks

MILAM v. DOMINICK'S FINER FOODS (December 7, 2009)

Ahmad Milam is one of several African-American produce clerks at a Chicago Dominick's grocery store. Each week, Dominick's posts the produce clerks’ schedule of hours for the upcoming week. A more-senior produce clerk is allowed to "claim" the hours of a less-senior clerk. Milam and five other African-American produce clerks filed suit against Dominick's, claiming that it was guilty of race discrimination when it classified two more junior white women as produce clerks but did not include them on the schedule. The court granted summary judgment to Dominick's on the ground that plaintiffs had no evidence of damages. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Rovner affirmed. The Court was quite critical of the district court's handling of the case. It noted that one of the women at issue was actually never a produce clerk. Although she had been offered and accepted a promotion to produce clerk, she changed her mind and never was scheduled to work as one. Dominick's presented evidence years ago that the failure to list the second woman on the produce clerk schedule was an innocent mistake. Plaintiffs never challenged the evidence as pretextual. The court should have granted summary judgment to Dominick's. With respect to the eventual order of the district court, the Court agreed that the plaintiffs presented insufficient evidence of either actual or probabilistic injury. The Court conceded that the plaintiffs' probabilistic injury theory was a proper damages theory. It requires, however, evidence of the expected benefit – which was never presented. In the end, the Court termed the case frivolous.

• Email This
• Print
• Comments
• Trackbacks

MANN v. CALUMET CITY (December 7, 2009)

Calumet City passed an ordinance that requires a homeowner to conduct an inspection prior to the sale of the house to ensure its compliance with the building code. Several residents of the city brought an action challenging the constitutionality of the ordinance. The court dismissed the complaint for failure to state a claim. The residents appeal.

In their opinion, Judges Bauer, Posner and Sykes affirmed. The Court first noted that the residents challenged the ordinance as written, not relying on any particular facts regarding its application to them. The Court then reviewed the "reasonable" procedural provisions of the ordinance, concluding that the residents' challenges were frivolous.
 

• Email This
• Print
• Comments
• Trackbacks

BOYER v. CROWN STOCK DISTRIBUTION, INC. (November 18, 2009)

Crown Unlimited Machine, Inc. ("Crown"), which designed and built custom machinery, was owned by the Stroup family. In 1999, the Stroups sold the company to Kevin Smith for $6 million. The $6 million consisted of $3.1 million that Smith borrowed, a $2.9 million note and only $500 directly from Smith. The Stroups split almost $600,000 in cash withdrawn from the company pre-closing as well as the $3.1 million in cash received at closing. Within about three years, the new Crown declared bankruptcy. The assets brought out $3.7 million. Most of the money was used to pay off the secured debt -- little was left to address over $1.5 million in unsecured debt. The Trustee in bankruptcy brought an action against the Stroups and the company, alleging a fraudulent conveyance. The bankruptcy court awarded over $3 million to the trustee. The district court affirmed. The Stroups appeal -- the Trustee cross-appeals, seeking the $600,000 pre-closing distribution.

In their opinion, Judges Posner, Rovner and Williams affirmed in part and reversed in part. Under the Uniform Fraudulent Transfer Act, a transfer is fraudulent if the corporation did not receive "reasonably equivalent value" and was therefore left with insufficient funds to be able to survive. Fraudulent conveyance law looks to substance rather than form -- the Court concluded that the form of the transaction was not important. Here, new Crown made payments and incurred obligations that threatened its ability to survive. It failed to receive "reasonably equivalent value" -- the bankruptcy court did not err in so finding. The Court disagreed with the bankruptcy court, however, with respect to the almost $600,000 dividend pre-closing. The evidence supported the conclusion that the dividend was part of the fraudulent conveyance rather than a normal distribution of profits. The Court reversed the bankruptcy court to the extent it denied recovery to the Trustee of the dividend.

• Email This
• Print
• Comments
• Trackbacks

BANDAK v. ELI LILLY AND COMPANY RETIREMENT PLAN (November 18, 2009)

Stephen Bandak was employed by an Eli Lilly company in England, his native country, from 1978 to 1995. He participated in the company's retirement plan. He was transferred to the United States in 1995. The company told him, upon his enrollment in the U. S. company's plan, that his benefits in that plan would be based on years of employment retroactive to 1978. The plan also provided that benefits would be reduced by the actuarial equivalence of any other benefits under a “qualified defined benefit plan” maintained by an Eli Lilly company. When Bandak retired in 2004, the company took the position that his benefits under the English company's plan were benefits under a qualified defined benefit plan and were thus properly deducted from his U.S. pension benefits. Bandak sued the company under ERISA. Judgment was entered in his favor for both damages and an injunction relating to future benefit payments. The court also concluded that Lilly's position was not substantially justified and awarded attorneys’ fees. Eli Lilly appeals.

In their opinion, Judges Posner, Rovner and Williams affirmed. The Court focused on the language "qualified defined benefit plan" in the plan document. The term is a technical term and it refers to a plan that has been afforded favorable tax treatment by the Internal Revenue Service. The Court concluded that it had no meaning outside that context. The Court applied the presumption that, when a technical legal term is used in the contract, it is given its technical legal meaning. If it had no meaning outside the United States, the English plan was not such a plan and it should not have reduced his benefits. Substantial evidence in the record supported the Court's conclusion. The Court also concurred in the district court's conclusion that the company's position was not justified.

• Email This
• Print
• Comments
• Trackbacks

SCHERING-PLOUGH HEALTHCARE PRODUCTS v. SCHWARZ PHARMA (October 29, 2009)

Schering-Plough makes an over-the-counter oral laxative which it sells under the trade name "MiraLAX." Its chemical name is polyethylene glycol 3350. Four other companies sell polyethylene glycol 3350 as a generic, prescription medication. The FDA requires a warning on the over-the-counter version that it should not be used for more than seven days. The FDA also requires that a generic drug be labeled the same as the original drug and be bioequivalent to the original drug. Schering-Plough brought a Lanham Act action against the defendants. It alleges that the defendants' labels stating that the drug is sold by prescription only are false, in violation of the Act. Meanwhile, the FDA is conducting proceedings to determine whether the defendants' products are mislabeled. The district court dismissed Schering-Plough's suit without prejudice, noting that it could be refiled, if appropriate, after the conclusion of the FDA proceedings. Schering-Plough appeals. The defendants cross appeal, seeking a dismissal with prejudice.

In their opinion, Judges Posner, Flaum and Rovner affirmed. The Court first addressed its jurisdiction, given that the suit was dismissed without prejudice below. The Court recognized some decisions in the past that have suggested that a dismissal without prejudice is not appealable unless the plaintiff is unable to bring a later suit. Focusing on the actual holdings in those cases as well as other authority, the Court concluded that a dismissal without prejudice is appealable unless the defect is immediately curable. On the merits, the Court looked to the provisions of the Lanham Act and the Food, Drug, and Cosmetic Act. It noted that the statutes should be read so as not to conflict with each other and to be given as much effect as possible. For example, the FD&C Act should not be read to prohibit a disclaimer that would correct a misinterpretation on which a Lanham Act claim is based. The record in the case did not make it clear, however, what the Lanham Act remedy should be. Schering-Plough was not very helpful in its suggestions. In addition, the Court believed that any change in labeling adopted by the defendants would have to be approved by the FDA. The Court therefore agreed with the district court that the FDA should be allowed to consider the misbranding issue before the Lanham Act suit is allowed to proceed. Although the Court affirmed the lower court's dismissal without prejudice, it also commented briefly on the viability of the Lanham Act claim. It questioned whether Schering-Plough's reliance on the "literal falsity" doctrine was proper in the context of the case.
 

• Email This
• Print
• Comments
• Trackbacks

JAMES RIVER INSURANCE CO. v. KEMPER CASUALTY INSURANCE CO. (October 28, 2009)

James River and Kemper both issued malpractice insurance policies to a law firm. The Kemper policy covered claims made between September of 2000 and September of 2007, for acts committed between 1937 and 2002. The James River policy covered claims made between November 2004 and November 2005, for acts committed after November 2002. The malpractice suit giving rise to the dispute between the insurance companies alleged that two lawyers represented a wife in a divorce case. In December of 1999, they entered into a property settlement wherein their client was to receive a significant amount of her husband's stock options. Their attempt to document the settlement failed to accomplish the transfer of the options. A lawsuit against the husband was still pending when, in July 2001, the husband's employer declared bankruptcy, rendering the options worthless. The suit against the husband was finally dismissed in 2003. Thus, the acts complained of in the malpractice action occurred during both policies' claim periods. The James River policy contained a provision that excluded from coverage any claim that arose from the same set of circumstances as a claim under a "prior policy." James River brought a declaratory judgment action against Kemper seeking a declaration that it had no duty to defend or indemnify. The court granted summary judgment to Kemper. James River appeals.

In their opinion, Judges Posner, Manion and Tinder reversed. First, the Court concluded that the wrongful acts that occurred during the James River policy period arose from and were a continuation of the wrongful acts and decisions committed during the prior period. This was just the situation the James River exclusion addressed. Next, The Court considered the district court's ruling that the Kemper policy was not a “prior policy.” The district court had relied on the fact that the firm had purchased a five-year reporting extension on the Kemper policy. Although the policy period ended in 2002, the reporting extension allowed for a claim to be made through 2007. The Court noted, however, that the reporting extension did not extend the policy period. The Court concluded, therefore, that the Kemper policy was a "prior policy" and the James River exclusion applied. The Court remanded for the entry of the declaratory judgment requested by James River.

• Email This
• Print
• Comments
• Trackbacks

SUNSTAR v. ALBERTO-CULVER CO. (October 28, 2009)

Alberto-Culver is a significant domestic producer of hair and skin-care products. In 1980, it transferred Japanese trademark registrations to Sunstar, a Japanese manufacturer of similar products. The deal required Sunstar to transfer the trademarks to Bank One Corporation in trust for 99 years. Bank One, in turn, licensed them back to Sunstar and was obligated to return the marks to Sunstar after the term of years. As trustee, Bank One could stop the use of the mark if it had reasonable grounds to think that Sunstar committed an act that created a danger to the value or validity of the marks. Alberto-Culver and Sunstar referred to the rights granted as a senyoshiyoken, the Japanese legal term describing a license under which the licensee has the exclusive right to use the marks in its geographic area and can sue infringers in its own name. Sunstar paid $10 million for the license. In 1989, Sunstar asked for permission to use a variant of one of the marks. Alberto-Culver refused. Sunstar ended up paying another $10 million for the rights to use the variant. In 1999, Sunstar again asked for permission to use a variation of one of the marks. This time, when Alberto-Culver refused, Sunstar filed suit. The suit sought a declaration that the requested variation was permitted by the license agreement. At trial, the district court refused to instruct the jury on the legal meaning of the term senyoshiyoken, concluding that it was irrelevant. The jury returned a verdict for Alberto-Culver but awarded no damages. The judge enjoined Sunstar from using the variation of the mark, terminated the agreement as a result of Sunstar's breach and ordered the marks returned to Alberto-Culver. Sunstar appeals.

In their opinion, Judges Posner, Manion and Evans vacated and remanded. The Court first disagreed with the lower court's conclusion that Japanese law was irrelevant. The Court stated that if sophisticated contracting parties use a foreign technical legal term in their contract, the presumption is that it is used in its technical legal sense. The issue for the Court, therefore, was whether the holder of the Japanese senyoshiyoken is permitted to use variants of licensed marks. The Court then criticized the general use of expert testimony to prove the content and meaning of foreign law. Noting that such testimony is not permitted when a federal court applies the law of a state or when the court of one state applies the law of another state, the Court expressed a strong preference for secondary materials over the testimony of expert witnesses. On the merits, the Court noted that American law does not consider a change in a mark's typeface or a modest change in the appearance or wording of a mark a material alteration. Japanese law is the same. Particularly here, where the license was for a period of 99 years, it may have even required modest changes in the mark over time to ensure its continued value and validity. The Court concluded that the holder of a Japanese senyoshiyoken is entitled to make minor changes in the mark. Although the Court expressed its temptation to order Alberto-Culver’s claims dismissed with prejudice, it declined to do so. Sunstar had not requested that relief and Alberto-Culver was not afforded an opportunity to respond. It did, however, vacate the judgments and remand the case.

• Email This
• Print
• Comments
• Trackbacks

KAMELGARD v. MACURA (October 23, 2009)

Kamelgard and Macura are both bariatric surgeons. Kamelgard practices in New Jersey and Macura practices in New York. After Kamelgard testified against Macura in a malpractice action in New York, Macura allegedly sent similar letters of complaint to the American Society of Bariatric Surgeons in Florida and the American College of Surgeons in Chicago. The American College took no disciplinary action on the complaint. Kamelgard claims not to have known the source of the American College complaint until he learned about Macura's letter to the American Society at a convention in mid-2007. Kamelgard brought a defamation action in Chicago within a year of the convention but two years after the publication of the letter. The district court concluded that the Chicago venue was improper and dismissed the suit without prejudice. Kamelgard appeals -- Macura cross-appeals seeking a dismissal with prejudice.

In their opinion, Judges Posner, Flaum and Rovner modified the judgment of the lower court to a dismissal with prejudice. The Court expressed some confusion over the intent of the lower court's ruling. It concluded, however, that the court dismissed the claim based upon the Illinois (American College) letter for failure to state a claim because of the absence of the letter and Kamelgard’s inability to obtain it. It then dismissed without prejudice the claim based on the Florida (American Society) letter because venue was not proper in Illinois. Nevertheless, given the uncertainty of the lower court's ruling, the Court went on to address the choice of law issue presented in the appeal. Although both Illinois law (favored by the plaintiff) and New Jersey law (favored by the defendant) have a one year statute of limitations for defamation, Illinois has a discovery rule -- New Jersey does not. The Court opined that the general "most significant relation" test that looks to the place of the injury does not always fit defamation cases, particularly were a defamatory statement is communicated in many different locations. In that situation, Court concluded that the application of the law of the plaintiff's domicile makes the most sense. Even though there was no publication of the letter in New Jersey, it is the location where the plaintiff is likely to be harmed and it is the state with a substantial interest in protecting his reputation. New Jersey law should therefore apply and both defamation claims are barred by the statute of limitations. 

• Email This
• Print
• Comments
• Trackbacks

ILLINOIS DUNESLAND PRESERVATION SOCIETY v. ILLINOIS DEPARTMENT OF NATURAL RESOURCES (October 14, 2009)

Illinois Beach State Park is located in northeastern Illinois on the shores of Lake Michigan. Various buildings in the park have display racks containing pamphlets on various topics. The Illinois Dunesland Preservation Society is a nonprofit corporation that supports the park. The Society created a pamphlet warning of the risk of asbestos at the park's beaches. When the park refused to display the pamphlet, the Society brought suit under § 1983 against the state officials involved in operating the park. The district court granted summary judgment to the officials. The Society appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Wood affirmed. The Court first recited some of the "forum analysis" of Supreme Court decisions but then questioned the value of that analysis to the question. Every public site, stated the Court, can be regulated to some extent depending on the circumstances and as long as the regulation is not used to stifle speech. Here, the materials displayed in the park's racks are meant to promote the park and state tourist facilities generally. The dire warning contained in the Society's pamphlet is hardly consistent with that purpose. The Court concluded that the park was not required to display, and thus tacitly endorse, the pamphlet containing the warnings. The Court added that there were other means, such as personal distribution, available to the Society to convey its message. The park's position was not an unreasonable barrier to speech.

• Email This
• Print
• Comments
• Trackbacks

COONEY v. ROSSITER (September 30, 2009)

Deborah Cooney and her husband were divorced in 1998. The court granted her custody of their two sons. Her ex-husband later petitioned for a transfer of custody. The court appointed a lawyer to act as the children's representative. Cooney alleges that the representative arranged to have a psychiatrist appointed and then suggested to the psychiatrist that she suffered a particular mental illness. The psychiatrist's report did conclude that she suffered from the mental illness. Cooney alleges that her ex-husband received a copy of that report but that she did not. Based on the report, the court granted temporary custody to the ex-husband. She brought suit against the judge, the representative, the psychiatrist, the children's therapist and the ex-husband's lawyer. The court dismissed her complaint. Cooney appeals.

In their opinion, Judges Bauer, Posner and Wood affirmed. The Court first found the state court judge absolutely immune since he was acting in his judicial capacity. Next, the Court found that the psychiatrist and representative were also entitled to absolute immunity, since the acts complained of all occurred within their official duties. Finally, the Court concluded that the factual allegations against the two private persons failed to meet federal pleading standards. Although citing Bell Atlantic and Iqbal and the heightened pleading standard established therein, the Court found that Cooney's allegations were too vague to meet even the pre-existing heightened pleading requirement for conspiracy allegations.

• Email This
• Print
• Comments
• Trackbacks

AGUIRRE v. TURNER CONSTRUCTION COMPANY (September 30, 2009)

Jose Aguirre was employed as a bricklayer by one of the subcontractors involved in the renovation of Chicago's Soldier Field. He was seriously injured when he fell off a scaffold. He brought this personal injury suit against the joint venture that was acting as general contractor for the project. The court first found that the general contractor had no duty to Aguirre and that Aguirre could not avail himself of res ipsa loquitur, in that the general contractor did not have exclusive control of the scaffold. It granted summary judgment to the defendants. On appeal, the Seventh Circuit reversed on both grounds, concluding that the defendants assumed a duty and that exclusive control is not an element of res ipsa loquitur. On remand, the case was tried to a defense verdict. Aguirre appeals.

In their opinion, Judges Posner, Ripple and Kanne affirmed. The general rule, stated the Court, is that a general contractor is not liable to someone injured as a result of the negligence of a subcontractor. An exception applies, however, when the contractor either by law or contract is required to care for the safety of the subcontractor's employees. Here, the general contractor took active steps to ensure the safety of all employees on the project. The exception therefore applies. Having found a duty, the Court proceeded to address the issue of whether it was breached. The subcontractor itself assembled the scaffold hours before the accident. Although the general contractor imposed strict requirements for scaffolds and inspected them frequently, the Court concluded that it did not breach its duty by not inspecting every one before it was used. The accident was caused either by the negligence of Aguirre or the subcontractor. Finally, the Court addressed the fact that the scaffold was missing a middle railing, the presence of which might have prevented the injuries by giving Aguirre something to grab as he fell. The problem with that, said the Court, is that the middle railing is not designed for that purpose. To rely on the absence of a safety measure, the injury complained of must be one that the safety measure was designed to prevent.

• Email This
• Print
• Comments
• Trackbacks

THOMAS v. CITY OF PEORIA (September 3, 2009)

A lawyer for the city of Peoria sought and obtained a warrant for the arrest of Joshua Thomas. Joshua’s crime -- nine unpaid parking tickets. Sometime later, Joseph Thomas was stopped for a traffic violation. Although the names and addresses of Joshua and Joseph did not match, the driver's license number on the arrest warrant for Joshua did match that of Joseph. Joseph was arrested. He was later released when it was determined that he was, indeed, not Joshua. Joseph brought an action under § 1983 against the City and the lawyer who obtained the warrant. He alleged a deprivation of his Fourth Amendment and due process rights. The court dismissed for failure to state a claim. He then denied class certification. Thomas appeals.

In their opinion, Judges Cudahy, Posner and Tinder affirmed. The Court first addressed "zone of interest" standing. The Court explained zone of interest standing as a requirement of federal common law that limits the class of persons entitled to sue. Remoteness of injury is one of those limitations. Here, for example, assuming state law does not authorize an arrest for unpaid parking tickets and that such an arrest would therefore violate the Constitution, Joshua Thomas is the one within the class of people the policy is designed to protect. Joseph’s interest is to remote to be recognized. Alternatively, the Court went on to conclude that Joseph would fare no better even if he was within the zone of interest. The Supreme Court held in Moore that a otherwise reasonable arrest (which this is) is not unconstitutional simply because it was for an offense that does not authorize arrest. The Court easily disposed of the due process argument. Finally, the Court added that the individual defendant would in any event have absolute immunity as a prosecutor performing a prosecutorial function.

• Email This
• Print
• Comments
• Trackbacks

 PRINCE v. STEWART (September 2, 2009)

The Chicago Teachers Union fired Earl Prince from his job. Prince filed an administrative discrimination charge. He then brought an action pro se for employment discrimination under Title VII before he received any response from the Illinois Department of Human Rights or the EEOC. The district court dismissed the complaint because Prince had not yet received a right-to-sue letter. Several months later, after Prince had received the letter, the district court granted his motion to reopen the case. The court vacated the order, however, a few days later at Prince's request. Months later, on the last day to sue, Prince again moved to reopen the case. This time, the judge turned him down -- and it was too late to file a new complaint. Prince appeals.

In their opinion, Judges Posner, Coffey and Manion reversed and remanded. The Court recognized Prince's mistake when he followed up the first order reopening his case with a request to reinstate the dismissal. He was simply going to be out of the jurisdiction for a short time and need not have worried about his temporary unavailability. However, the Court also recognized that no one was prejudiced by his mistake. If the second motion to reopen was filed in a timely fashion, the Court could not see any reason why it should not have been granted. The Court concluded that the district court’s lulling of the pro se litigant into believing that he did not have to refile his complaint amounted to equitable tolling.

• Email This
• Print
• Comments
• Trackbacks

UNITED STATES v. APEX OIL CO. (August 25, 2009)

Years ago, a corporate predecessor of Apex Oil Co. owned a refinery near Hartford, Illinois. According to the EPA, the operation of the refinery contributed to the contamination of the groundwater in the area. The United States brought an action, pursuant to the Resource Conservation and Recovery Act (RCRA), for an injunction to require Apex to clean up the site. Apex argued that its earlier discharge in bankruptcy relieved it of any cleanup obligation. The district court issued the injunction. Apex appeals.

In their opinion, Judges Cudahy, Posner and Kanne affirmed. The Court identified the principal issue on appeal as whether the government's claim for the injunction was discharged in bankruptcy. Under the bankruptcy laws, the Court stated that a debtor is discharged from any "liability on a claim." A "claim" is further defined as a "right to payment" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." The Court concluded that the natural reading of the bankruptcy provision is that an equitable claim is dischargeable if the holder can obtain a money judgment in lieu of the injunction under certain circumstances. Here, however, the statute under which the government sought the injunction (RCRA) does not authorize any form of money judgment -- the only remedy available to the government is a cleanup order. The fact that the cleanup order would require a significant payment by Apex did not convert the injunction into a money judgment. The Court distinguished the Supreme Court's opinion in Kovacs. In Kovacs, the plaintiffs were seeking money from the debtor. Apex also challenged the injunction itself on vagueness grounds. The Court actually agreed that the injunction was vague and that it has in the past insisted on compliance with the requirement that an injunction describe in some reasonable detail the acts required. However, the Court concluded that that policy applies when compliance with the rule is feasible. Here, the subject of the injunction is a complicated refinery remediation. In such cases, more leeway is necessary.

• Email This
• Print
• Comments
• Trackbacks

FLYING J, INC. v. VAN HOLLEN (August 20, 2009)

A Wisconsin statute prohibits a gasoline retailer from selling its product below cost plus a defined markup. The statute contains both state and private remedies of both an injunctive and damages nature. Flying J is such a gasoline retailer. It sued the state, seeking to enjoin enforcement of the statute on the grounds that it was preempted by the Sherman Act. The district court granted the injunction. During the time period for taking an appeal, the state decided not to appeal. An association of gasoline retailers asked the district court for leave to intervene both as of right under Rule 24(a)(2) and as permissive under Rule 24(b)(1)(B). The court denied the intervention on the grounds that it was untimely and that the association's members lacked the requisite interest. The association appeals.

In their opinion, Judges Posner, Ripple and Kanne vacated. Intervention pursuant to Rule 24(a)(2) requires both that the party have an interest in the action and be within the class of persons the law is intended to protect. Here, the members of the association are the direct beneficiaries of the statute and would be directly harmed by the invalidation of the statute. The court concluded that this interest was sufficient for intervention. The Court also concluded that the association's motion was not untimely. Since their interest was simply to prosecute the appeal that the state decided to forgo, it is indeed timely. The Court did consider somewhat problematic the Rule 24(a)(2) requirement that a disposition of the action would impair the association's ability to protect its interests. The district court's injunction would not prevent one of the association's members from bringing a private action for damages or for an injunction -- although it would be a substantial inconvenience. Instead of resolving that issue, the Court turned to the request for permissive intervention. Permissive intervention does not contain the same impairment requirement. Relying on its earlier analysis of the association's interest and the timeliness of its request, combined with its conclusion that Flying J would not be prejudiced, the Court concluded that permissive intervention should be allowed. Instead of remanding to the district court, the Court treated the intervener as the appellant and ordered briefing.

• Email This
• Print
• Comments
• Trackbacks

MARRS v. MOTOROLA, INC. (August 14, 2009)

Years ago, Michael Marrs developed a psychiatric condition that forced him to leave his job at Motorola and go on disability leave. Six years after he started his leave, Motorola amended its disability plan. It imposed a two-year limit on disability benefits resulting from mental, rather than physical, conditions. Marr's benefits were terminated by Motorola two years after the amendment. Marrs brought a class action under ERISA. The district court granted summary judgment to Motorola. Marrs appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner affirmed. ERISA limits a plan's ability to amend its terms. It provides that no amendment can adversely affect benefits with respect to periods of disability prior to the date of the amendment. The Court rejected Marrs' interpretation under which a plan could not affect any benefits for a period of disability that began before the amendment, but continues to run. The Court also addressed and rejected Marrs' argument that the Supreme Court's Glenn decision required a different outcome. Normally, the Court stated, if the plan administrator is given discretion to interpret the terms of the plan, a court will only reject its interpretation if it is unreasonable. That discretion exists in Motorola's plan. In Glenn, the Supreme Court addressed the situation when a plan administrator is laboring under a conflict of interest. Here, however, the Court concluded that the record did not establish that the administrator had a serious conflict of interest.
 

• Email This
• Print
• Comments
• Trackbacks

SMITH v. DUFFEY (August 3, 2009)

Jack Smith sold his company and its intellectual property to Dade Behring, Inc. He received, as part of the consideration, options to purchase 20,000 shares of Dade Behring stock. He soon left the employ of the company. He agreed to accept $1.4 million in cash, while retaining his options. A few months later, the company entered bankruptcy. Smith's options were extinguished as part of its reorganization. Smith sued several officers of the company, alleging that they had a duty to disclose at the time of this termination agreement the fact that the company would soon enter bankruptcy. The district court dismissed his fraud claim for failure to state a cause of action. Smith appeals.

In their opinion, Judges Cudahy, Posner and Kanne affirmed. The Court stated that when the fraud alleged is the failure to disclose something, the plaintiff must establish the presence of a duty. A duty can arise in a fiduciary relationship. In the absence of relationship, it can arise when silence would be misleading because of some other statement made by the defendant. Here, the Court concluded that the defendants did not say anything that lulled Smith into thinking the company was doing well. In fact, the Court noted that the defendants advised Smith that the company was in trouble and was seeking an "exit strategy." The Court concluded that Smith's claim was without merit.

• Email This
• Print
• Comments
• Trackbacks

GABBANELLI ACCORDIONS & IMPORTS, L. L. C. v. DITTA GABBANELLI UBALDO DI ELIO GABBANELLI (July 30, 2009)

Gabbenelli Accordions & Imports ("American Gabbenelli") used to be the American distributor for a predecessor of defendant Ditta Gabbenelli Ubaldo Di Elio Gabbenelli ("Italian Gabbenelli"). Disputes arose between the two companies in the 1990s. In 1999, the two companies entered into an agreement under which American Gabbenelli retained the exclusive right to use the Gabbenelli mark in North America and Italian Gabbenelli retained the exclusive right to use it in Italy. The parties further agreed that future disputes would be resolved by arbitration. Notwithstanding the arbitration agreement, Italian Gabbenelli sued American Gabbenelli in an Italian court and American Gabbenelli filed this suit in the United States. American Gabbenelli charged Italian Gabbenelli with trademark infringement. The district court first rejected Italian Gabbenelli's contention that the arbitration agreement deprived the court of jurisdiction. Nevertheless, the court stayed proceedings pending the outcome of the Italian litigation. When no decision was rendered within a few years, the court lifted the stay. American Gabbenelli served Italian Gabbenelli with requests for admissions in May of 2005. Italian Gabbenelli finally appeared through counsel in October of 2005 but did not respond to the requests for admissions. Italian Gabbenelli filed an opposition to American Gabbenelli's motion for summary judgment in June of 2007, and also asked for leave to deny the requests for admissions, which had since been deemed admitted. The court denied that request and granted American Gabbenelli's motion for summary judgment. Italian Gabbenelli appeals.

In their opinion, Judges Posner, Flaum and Wood affirmed in part, reversed in part and remanded. The Court rejected Italian Gabbenelli's appeal on liability. First, it agreed with the district court that the arbitration agreement did not deprive the court of jurisdiction. Second, it concluded that the Italian judgment (since rendered) was irrelevant because it was rendered after the district court judgment. Third, the Court concluded that the district court was within its rights in not allowing Italian Gabbenelli to reopen the requests for admissions after ignoring them for several years. The Court did reverse, however, with respect to damages. The district court awarded damages for lost profits plus statutory damages of $500 for each infringing accordion. The Lanham Act allows statutory damages only for violations on which compensatory damages are not awarded. The district court's award of lost profits and statutory damages with respect to the same accordions was improper. The Court also criticized the district court for awarding statutory damages on each individual item sold. The Act allows statutory damages on each "type of goods," not on individual goods. The Court remanded for a redetermination of damages.

• Email This
• Print
• Comments
• Trackbacks

IN RE: TURNER (July 20, 2009)

Joel Turner had monthly mortgage payments of $1500 when he filed a Chapter 13 petition for bankruptcy. In computing his "projected disposable income" under the bankruptcy law, he deducted the mortgage payments. He stated in his plan, however, that he intended to stop making his mortgage payments and turn his home over to the mortgagee. The trustee objected. The $1500 monthly deduction from Turner’s disposable income would make that much unavailable to the unsecured creditors. The bankruptcy court rejected the trustee’s objection. The trustee appealed under a since superseded process for direct appeal to the court of appeals. The process required: a) the trustee to file a notice of appeal in the bankruptcy court within 30 days, b) the bankruptcy court to certify that the ruling satisfied certain statutory criteria, and c) the trustee had to petition the court of appeals for leave to appeal within 10 days of the certification. The trustee filed his notice of appeal and the court certified. The trustee never filed a petition -- but the clerk of the court transmitted the request for certification and the certification order. The Court docketed the appeal.

In their opinion, Judges Posner, Sykes (dissenting) and Van Bokkelen (concurring in part and concurring in judgment) accepted the appeal and reversed. Each of the three judges had a different approach to the jurisdictional issue. Judge Posner emphasized that the clerk of the court transmitted to the appellate court everything that a petition for review would have contained. Therefore, the filing was complete and timely. Its only possible defect was that it was transmitted by the clerk rather than by the appellant. Because it served all the purposes behind the procedural requirements, Judge Posner concluded that it fell within the "functional equivalent" test. Alternatively, Judge Posner allowed the appeal pursuant to Rule 2 of the Federal Rules of Appellate Procedure, which allows the Court to suspend appellate rules for good cause. On the merits, the Court concluded that considering what the debtor's projected income will be at the time of plan approval was more consistent with the statutory language than considering it at the time of filing. The Court emphasized that it was not approving an exercise in speculation about the future income of the debtor -- it was considering only a fixed debt that all agreed would disappear.

Judge Van Bokkelen agreed that the Court could hear the appeal, but based his decision on Judge Posner's alternative Rule 2 holding, and concurred on the merits.

Judge Sykes dissented. She concluded that the petition was a statutory jurisdictional requirement. Since the trustee never filed a petition, she would dismiss for lack of appellate jurisdiction.

• Email This
• Print
• Comments
• Trackbacks

WIESMUELLER v. KOSOBUCKI (July 9, 2009)

The State of Wisconsin hosts two law schools, at Marquette University and at the University of Wisconsin. Graduates of these schools have a “diploma privilege.” That is, they are admitted to practice law in the State of Wisconsin without taking the bar exam. A graduate of any other law school in the United States must take the bar exam before being admitted to practice in Wisconsin. A group of those out-of-state graduates sued the Wisconsin Board of Bar Examiners and the Supreme Court of Wisconsin, alleging a violation of the Commerce Clause. The district court granted the defendants' motion to dismiss. The class appeals.

In their opinion, Judges Posner, Ripple and Wood reversed and remanded. The Court first addressed defendants' argument that the plaintiffs lacked standing because they challenged only that part of the Supreme Court Rule granting admission to graduates of state law schools without contending that they met a second requirement of the rule that their law school credits primarily focused on Wisconsin law. The Court concluded that the rule did not impose the latter requirement and that every class member could meet the actual requirements of the rule, as it read it. The Court next addressed the standing argument that Wisconsin could comply with an injunction by requiring all law school graduates to take the bar. This would certainly correct the problem but it would provide no relief to plaintiffs. But the Court reasoned that that was not the only outcome of such an injunction. There were numerous outcomes that would provide relief to the plaintiffs. Since the Court was unable to say that the plaintiffs have nothing to gain, they recognized their standing. On the merits, the Court conceded a state's right to regulate admission to its bar, even if the result impedes commerce. When it does, however, the regulation must be minimally reasonable. Here, the Court concluded that the record did not support any justification. It allowed the plaintiffs an opportunity on remand to establish the absence of a minimally reasonable justification.

• Email This
• Print
• Comments
• Trackbacks

HERSHEY v. PACIFIC INVESTMENT MANAGEMENT CO. (JULY 7, 2009)

A number of investors sold 10-year U.S. Treasury notes short and, between May 9 and June 30, 2005, bought futures contracts in settlement of their obligations. These investors brought a class action against Pacific Investment Management Co. (PIMCO), alleging that PIMCO violated the Commodity Exchange Act by cornering the market in certain Treasury notes. The class alleges that PIMCO increased its ownership of the notes to the point where it created a monopoly price, resulting in losses to the class of more than $600 million. PIMCO challenged the class definition. It pointed out that many class members did not lose money because of the net effects of multiple trades. The district court certified the class. PIMCO appeals.

In their opinion, Judges Posner, Evans and Tinder affirmed. The Court rejected PIMCO's argument that a district court had to determine which class members suffered damages before certifying a class. The standing requirement is satisfied as long as one member of the class has a plausible damage claim. The fact that a class member ultimately is shown to have not been injured does not preclude class certification. The Court cautioned, however, that a class should not be certified if it appears that many class members have suffered no injury. Although the Court did not believe that to be the case, it invited PIMCO, on remand, to find out through a random sample of depositions. The Court also rejected PIMCO's argument that a conflict of interest existed among class members because they purchased the notes at different times. The conflict was only hypothetical and may never materialize.

• Email This
• Print
• Comments
• Trackbacks

CUNNINGHAM v. MASTERWEAR CORP. (June 23, 2009
 

The Cunninghams owned a building in Martinsville, Indiana in which they operated a photographic studio from 1986 until 2004. The building next door contained a dry cleaning establishment. Soon after the Cunninghams made the building their residence, they both began to experience headaches and other physical maladies. They moved out as soon as the EPA advised them that high levels of perchloroethylene (PCE), a chemical used in dry cleaning, in their home posed a potential health risk. The Cunninghams brought an action for common law nuisance, seeking damages for both their physical injuries and their loss of property value. The court disqualified their only medical expert and barred them from testifying regarding appraisals of their property. The court then granted summary judgment to the defendant. The Cunninghams appeal.

In their opinion, Judges Posner, Manion and Kanne affirmed. Although the expert had concluded that all of the Cunningham’s symptoms were caused by exposure to PCE, the Court noted that he was not a toxicologist, and he presented no scientific theory that linked the Cunningham’s exposure level to their symptoms. The Court concluded, therefore, he presented no evidence upon which a trier of fact could rely to conclude that the exposure was the cause of the ailments. With respect to the valuation of the property, the Court stated that a property owner can testify about the value of his property if he is an expert on property values or if he has personal knowledge. Cunningham simply wanted to repeat others’ assessments of the property’s value. The Court concluded that the testimony was properly disallowed as hearsay. The Court added that, even if the testimony was allowed, there was no evidence regarding the cause of any loss in value. Since the Cunningham’s were entitled only to the loss of value that could be fairly attributed to the PCE, as opposed to market forces or otherwise, they could not have prevailed even with the testimony.

• Email This
• Print
• Comments
• Trackbacks

ROTH v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY (June 5, 2009)

The plaintiffs, Bonnie and Connie Roth, were insurance agents. Each had an agency agreement with American Family Mutual Insurance Company. The agreement provided that it could be terminated for "undesirable performance" only with six months notice and an opportunity to correct. It also provided that it could be terminated without notice if an agent engaged in "dishonest, disloyal or unlawful" conduct. One of the agents signed an applicant's name on a insurance policy application at the applicant’s request. The other signed the name of a different agent on a policy certification, also with authorization. American Family terminated their agency agreements. The Roths brought suit for breach of contract. The district court granted summary judgment to American Family. The Roths appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Wood affirmed. The Court considered whether signing another's name is "dishonest" under the agreement. The Court appreciated that neither agent gained personally by her conduct and that a typical element of dishonesty is theft. However, the Court went on to consider other meanings of dishonesty, including breach of trust and deceitful behavior. The Court concluded that the act of signing another’s name without any indication of authority was deceptive and fit within the agreement’s provision allowing termination without notice.

• Email This
• Print
• Comments
• Trackbacks

FLETCHER v. CHICAGO RAIL LINK, L.L.C. (May 28, 2009)

William Fletcher was injured while driving a utility vehicle in a rail yard. He sued Chicago Rail Link under the Federal Employers Liability Act. He alleged that the accident was caused by the railroad's failure to maintain the vehicle in a safe condition. A jury awarded him $700,000 in damages but also found that he was 50% negligent himself. Under FELA, such a finding would reduce the damages by one half unless the court finds that the employer violated "any statute enacted for the safety of employees" and that the violation contributed to the accident. The district court found that Chicago Rail Link had violated an Illinois Commerce Commission regulation and awarded full damages. Chicago Rail Link appeals.

In their opinion, Judges Posner, Manion and Kanne affirmed in part and reversed in part. The Court first noted that the "any statute" language in FELA includes regulations issued by a state agency which is "participating in investigative and surveillance activities" pursuant to 49 U.S.C. § 20105. Section 20105 allows the Secretary of Transportation to prescribe investigative and surveillance activities to enforce safety regulations and provides that a state may participate in those activities when the safety practices are regulated by a state authority. The Court disagreed with the lower court's ruling that all railroad worker safety regulations are included within § 20105. Rather, the Court concluded that FELA only applies to state regulations that support or implement federal safety norms. Since the Illinois regulation at issue was not such a regulation, the Court determined that it was not "any statute" as contemplated by FELA. The Court remanded for the 50% reduction in damages.

• Email This
• Print
• Comments
• Trackbacks

ABAD v. BAYER CORPORATION (May 1, 2009)

In one case, several hundred Argentine hemophiliacs brought a class action against Bayer Corporation and others, alleging that they were infected with AIDS as a result of the defendants’ negligence. In another case, Argentina plaintiffs brought suit against U.S. companies arising out of an automobile accident. Plaintiffs allege that defendants were negligent in the design and manufacture of the vehicle and its tires. Both cases were filed in federal district courts against American defendants by foreign plaintiffs for injuries sustained in Argentina. After significant discovery, the judge in each case dismissed the case based on the doctrine of forum non conveniens. The plaintiffs appealed.

In their opinion, Judges Posner, Evans and Tinder affirmed. The parties agree that the standard of review is an abuse of discretion. The Court first addressed whether the plaintiffs are entitled to a choice of forum presumption. Although the Court conceded that such a presumption is typical, it concluded that the presumption has little influence on the outcome when plaintiffs seek to maintain the litigation on the defendants’ turf while the defendants would rather engage on the plaintiffs’ turf. In those cases, district courts should simply weigh the advantages and disadvantages of the respective fora. In Gulf Oil Corp., the Supreme Court provided a long list of factors that a lower court should consider in applying forum non conveniens. The Court reviewed the circumstances of the two cases to determine whether either district judge abused his/her discretion. In the AIDS case, the Court looked at a number of factors, including the burden of translation and the cost of discovery. In the end, however, the determining factor was that Argentine law would govern, whether the cases were tried in the United States or Argentina. The Court found further support for dismissal in the fact that the case involved the application of market share liability, an uncertain area of Argentine law. The Court reached the same conclusion with respect to the automobile accident case. Again, although the legal issues were not as complex or uncertain, Argentine law would apply. An Argentine court is more competent than an American court to apply its law. The Court found no abuse of discretion.

• Email This
• Print
• Comments
• Trackbacks

COLLINS v. UNITED STATES OF AMERICA (May 1, 2009)

Two private planes collided while approaching a small airport. The three people aboard all died. Air traffic control at the small airport was under the control of Midwest Air Traffic Control Services, a company hired by the Federal Aviation Administration. The representatives of the deceased brought an action against the United States under the Federal Tort Claims Act. They allege both that the air traffic controller was negligent in clearing both planes to land and that the FAA was negligent because it had not installed a radar system at the small airport. The district court entered judgment for the United States after a bench trial. The representatives appeal.

In their opinion, Judges Posner, Ripple and Evans affirmed. Before addressing the merits, the Court addressed the United States’ argument that the district court lost jurisdiction when Midwest settled the representatives’ claims. The Court recited the general Illinois rule that a principal whose liability is based on the negligence of its agent cannot be sued if the agent settles with the plaintiff. The Court concluded, however, that the rule has no application when the principal is the United States and liability is based on the Federal Tort Claims Act. Under the Act, the United States does not have a right of indemnity from the agent -- in fact, the government is exclusively liable. Under those circumstances, the rationale for the rule does not apply. On the merits, the Court quickly disposed of the controller negligence claim. The Court has held, and continues to hold, that independent contractor air traffic controllers are not employees of the United States, notwithstanding extensive FAA control. The Act therefore does not create U.S. liability. With respect to the FAA negligence issue, the Court stated that the Act does not apply to a claim related to a discretionary function of a federal agency. The Court concluded that the FAA’s consideration of a whole host of factors in determining where to install radar equipment was a quintessential discretionary function. Negligent or not, the government was shielded from liability for the FAA's failure to install radar at the airport.

• Email This
• Print
• Comments
• Trackbacks

MARSHALL v. H&R BLOCK TAX SERVICES, INC. (April 30, 2009)

Suit was filed in state court against a defendant class of companies. The defendant class consisted of H&R Block Tax Services, Inc. ("TSI") and its affiliates or franchisees. The suit, brought on behalf of a plaintiff class, alleged violations of the Illinois Consumer Fraud Act. The state court certified the defendant class and originally three plaintiff classes, including people in all 50 states and the District of Columbia. On TSI's motion, the court decertified the defendant class but refused to decertify the plaintiff class, although it did narrow it to residents of only 13 states. TSI removed the case pursuant to the Class Action Fairness Act (CAFA), on the theory that the decertification of the defendant class occurred after CAFA’s effective date and increased TSI’s potential liability. The district court remanded the case to state court. TSI requested leave to appeal, which the Court granted.

In their opinion, Chief Judge Easterbrook and Judges Posner and Tinder reversed. A case that was filed before the effective date of CAFA may still become removable if a court's ruling after its effective date increases a defendant's potential liability and does not "relate back" to the original claim. The Court first explored whether the decertification increased TSI's potential liability. On the pleadings, the Court concluded that TSI's potential liability may well have increased. Before decertification, it was not liable for the unlawful acts of all class members simply because it was a corporate affiliate, or because it was a class representative. Similarly, although the original complaint alleged joint and several liability, the complaint included three other defendants. The Court could not determine whether the plaintiffs sought to hold TSI liable for all the affiliates. The Court concluded that the plaintiffs may well be attempting to hold TSI liable for the acts of all the affiliates after decertification, which would appear to increase TSI's liability. With respect to whether the change "relates back" to the original complaint, the Court looked to whether the original complaint provided sufficient notice of the scope of the claim such that the defendant should not be surprised by the increased scope. Relying on its own conclusion that TSI's original liability was significantly less than it was facing after the ruling, the Court concluded that it did not relate back.

• Email This
• Print
• Comments
• Trackbacks

MADDEN v. ROLLS ROYCE CORP. (April 29, 2009)

Rick Madden, a member of the U.S. Air Force Reserve, was hired as a temporary employee at Rolls-Royce Corporation. He represented, falsely, that he was a graduate of Purdue's engineering program. He did not impress his supervisor with his skills. At the end of the temporary period for which she had been hired, Rolls-Royce let him go. He then applied for a job with Data Systems and Solutions (DS&S), without success. Madden brought suit against Rolls-Royce and DS&S, alleging that both violated the Uniformed Services Employment and Reemployment Rights Act (USERRA) by discriminating against him on the basis of his military service. The district court granted summary judgment to the defendants. Madden appeals.

In their opinion, Judges Bauer, Posner and Rovner affirmed. Even if a plaintiff under USERRA establishes that his military service was a motivating factor in his discharge or failure to be hired, the defendant is given the opportunity, and the burden, to show that its actions would have been taken even in the absence of military obligations. Here, the defendants’ evidence is compelling and barely contested. Madden’s performance at Rolls-Royce was unsatisfactory. The company was not going to retain him when it had to lay off someone and his co-worker was a better performer. With respect to DS&S, the Court concluded that the company surely would have checked his record and his resume before offering him a job. His poor performance at Rolls-Royce and his resume fraud would justify its refusal to hire.

• Email This
• Print
• Comments
• Trackbacks

CONSTRUCTION AND DESIGN CO. v. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (April 21, 2009)

Construction and Design Co. (CDC), a small construction company with three employees, is organized as a Subchapter S Corporation. As such, its income is taxed directly to its shareholders. CDC petitioned to obtain a visa to add a Ukrainian carpenter to its staff. The Department of Homeland Security denied the petition, ruling that CDC could not afford the proposed $50,000 salary for the carpenter. The district court affirmed. CDC and the alien appeal.

In their opinion, Judges Posner, Flaum and Wood affirmed. In order to obtain a visa, an employer must demonstrate to the Department of Labor that no U.S. citizen is qualified to do the work and must satisfy the Department of Homeland Security that it can afford the proposed salary of the alien. The Court pointed out that tax returns, relied on by the government, are not reliable indicators of a company's ability to afford another employee, particularly with respect to a Subchapter S company. Tax considerations can frequently influence the way income is treated. Nevertheless, the employer has the burden of proof with respect to its ability to pay. Here, the company's gross receipts in the year in question were only $400,000, the alien was already working for CDC in a temporary capacity for $23,000 less than his proposed permanent salary, there was no evidence of new business or a new contract with which to pay the new salary, and there was very little cushion in the company’s expenses. Although the Court hypothesized several scenarios under which the hiring might make economic sense, the employer never established an evidentiary record that met its burden.

• Email This
• Print
• Comments
• Trackbacks

BOWENS v. QUINN (April 2, 2009)

The Illinois Constitution allows the governor of the state to grant reprieves, commutations and pardons "on such terms as he thinks proper." An Illinois statute provides the procedural framework for the exercise of the governor's power. Twelve people who had filed petitions for clemency brought an action against the governor, alleging a violation of their due process rights under the 14th Amendment because of the governor's failure to act on their petitions within a reasonable time. While a motion to dismiss was pending, the governor acted on the petitions of nine of the plaintiffs, granting one and denying eight. The lower court denied the governor's motion to dismiss. The governor brought this interlocutory appeal.

In their opinion, Judges Posner, Kanne and Wood reversed. The Court first addressed the issue of mootness with regard to the plaintiffs whose petitions had been processed. With respect to those plaintiffs whose petitions were denied, the Court determined that the claims were not moot on the grounds that they met the "capable of repetition, yet evading review" standard of Roe v. Wade. The claim of the plaintiff whose application was granted was, on the other hand, moot. On the merits, the Court concluded that there was no ground for the denial of due process claim. The 14th Amendment does not create a property or liberty interest in obtaining a pardon. The fact that the plaintiffs are not claiming an entitlement to a pardon, but merely an entitlement to a reasonably prompt decision, does not change the result.

• Email This
• Print
• Comments
• Trackbacks

UNITED STATES v. APPROXIMATELY 81,454 CANS OF BABY FORMULA (March 25, 2009)

Federal agents seized thousands of cans of powdered baby formula from a warehouse. They suspected that the cans had been stolen from retail stores. Many of the cans had altered labels - some of the cans were even past their "use by" date. The government filed a civil forfeiture suit, which is still pending in the district court. The owner of the cans asked the court for permission to sell those cans that were not yet beyond their “use by” date. The court denied the motion. The owner appeals.

In their opinion, Judges Posner, Sykes and Dow affirmed. The court first addressed the jurisdictional issue. Because the ruling on the motion was not a final appealable decision, the appellant relied on the "collateral order" doctrine. Under that doctrine, the Court noted, a party may take an immediate appeal from an order if it involves issues separate from those of the underlying litigation and there is a risk of irreparable harm. The Court found both criteria present in this case. The issues were clearly separate and, although unclear, the possibility of a monetary remedy from the government was unlikely.

On the merits, the Court noted that the procedural rules governing asset forfeiture actions were quite vague and provided no particular criteria for deciding a motion like the one presented to the court below. They do not, for example, as appellant argues, provide that the government has the burden of proof. The Court concluded that the lower court had considerable discretion in ruling on the motion. The judge below conducted an evidentiary hearing, where there was conflicting evidence concerning the threat posed by the formula. The Court could not conclude that the lower court abused its discretion in denying the motion.

• Email This
• Print
• Comments
• Trackbacks

BECK v. DOMBROWSKI (March 20, 2009)

Philip Beck (and the class he represents) was a shareholder of Equity Office Property Trust ("EO"), a real estate investment trust. In late 2006, after EO agreed to be acquired by Blackstone Group, a bidding war ensued between Blackstone and Vornado. Offers and counter offers were each followed by a new proxy solicitation from EO's board. Eventually, EO accepted Blackstone's last bid. Beck brought suit under the Securities Exchange Act and SEC Rule 14a-9, as well as under state law. He alleged misrepresentations and omissions in the proxy solicitation. The district court dismissed the federal claims for a failure to plead the required state of mind with particularity. The court dismissed the state law claim under the doctrine of abstention. Beck appeals.

In their opinion, Judges Posner, Wood and Tinder affirmed. The Court first identified the erroneous basis on which the district court had dismissed the action. Rule 14a-9 does not require a state of mind for a violation -- only a misrepresentation or omission. Notwithstanding the district court's error, the Court still concluded that the complaint should be dismissed. Citing the principle of Bell Atlantic that a defendant should not have to incur the expense of discovery unless the complaint is a substantial one, the Court found that the plaintiffs’ theories were too speculative to survive. The Court also affirmed the lower court's dismissal of the state law claim under Colorado River abstention.

• Email This
• Print
• Comments
• Trackbacks

TEAL v. POTTER (March 20, 2009)

Joanne Teal had been employed by the U. S. Postal Service for almost 20 years when, during an altercation, she struck her supervisor's hand. Although the Postal Service attempted to discharge her, a grievance arbitrator determined that she should be suspended instead. Before she could be reinstated, however, Teal had to demonstrate her physical and mental fitness to resume her duties. For over eight months, the Postal Service went to great lengths to accommodate Teal's needs in scheduling the examinations. Finally, in July of 2003, the Postal Service advised Teal that they were terminating her employment. In the meantime, Teal filed an EEOC complaint in January of 2003, complaining that the original termination of her employment was discriminatory. Teal sued the Postal Service pursuant to the Rehabilitation Act. The district court concluded that she had failed to exhaust her administrative remedies and granted summary judgment to the Postal Service.

In their opinion, Judges Posner, Rovner and Evans vacated and remanded. The Court that the Rehabilitation Act, like Title VII of the Civil Rights Act, requires a plaintiff to exhaust administrative remedies before bringing an action. Additionally, a plaintiff cannot complain of conduct that was not the subject of an EEOC charge. Here, Teal's EEOC charge complained of discrimination prior to her original discharge in March of 2002. The district court complaint, on the other hand, complains of her July 2003 dismissal. The 2003 dismissal was based on Teal's noncompliance with the conditions of her reinstatement, not the incident with her supervisor. The Court concluded that Teal had failed to exhaust her administrative remedies. The Court remanded the case for a dismissal without prejudice.

• Email This
• Print
• Comments
• Trackbacks

MUHA v. ENCORE RECEIVABLE MANAGEMENT, INC. (March 10, 2009)

Charlotte Muha, representing a class of credit card debtors, brought an action under the Fair Debt Collection Practices Act ("FDCPA") against Encore Receivable Management, Inc. The complaint alleged that Encore violated the FDCPA by stating, in a debt collection letter, that "your original agreement with the above mentioned creditor has been revoked." Plaintiffs allege that that statement is false. The plaintiffs also claim that the statement is misleading and confusing and sought to introduce a survey to support that allegation. The lower court excluded the survey and granted summary judgment to Encore. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Tinder affirmed in part, reversed in part and remanded. The Court first upheld the lower court's exclusion of the survey. It concluded that the survey was improper both because the questions and answers were leading and because there was no control group that was shown the letter without the language in question. Notwithstanding the exclusion of the survey (and notwithstanding the admission at oral argument that plaintiffs could not prove damages without the survey), the Court held that plaintiffs could be entitled to statutory damages. The plaintiffs have the burden of proving that the statement was misleading. Although a survey may be the best evidence of that, is not the only potential evidence. The recipients of the letter itself may testify, allowing the judge to infer that the letter is misleading within the meaning of the FDCPA. The Court then addressed the merits of the falsity argument. The issue, it stated, was not the falsity of the statement. The Court concluded that the statement obviously meant that the credit card privileges of the recipient have been revoked. Nevertheless, the plaintiffs are entitled to attempt to prove that the statement is misleading. The Court found that the statement was confusing and noted that confusing language can have an intimidating effect on an unsophisticated consumer. It did not think the evidence was so clear on that point so as to entitle the plaintiff to summary judgment, however. It reversed and remanded for further proceedings. 

• Email This
• Print
• Comments
• Trackbacks

WISCONSIN ELECTRIC POWER COMPANY v. UNION PACIFIC RAILROAD COMPANY (March 2, 2009)

Wisconsin Electric Power Company (WEPCO) and the Union Pacific Railroad Company (UP) entered into a contract for the transportation of coal from Colorado coal mines to WEPCO during the years 1999 -- 2005. The rate that UP could charge WEPCO depended on whether UP was able to reload its empty railcars with shipments of iron ore destined for a steel mill in Utah. The contract provided that UP could charge the higher rate if "an event of force majeure" prevented it from reloading its rail cars with iron ore. The steel mill was bankrupt when the parties entered into the agreement, though still operating. It shut down in 2001, but did not close for good until 2004. UP declared an "event of force majeure" after the mill’s final closure in 2004. WEPCO sued UP for breach of contract, alleging that it was not liable for the higher rate under the contract and that UP failed to perform its contractual obligation to ship requested tonnage to WEPCO. The District Court granted summary judgment to UP. WEPCO appeals

In their opinion, Judges Posner, Ripple and Rovner affirmed. The Court first rejected WEPCO’s argument that UP waived its rights by not providing the “prompt notice” required by the contract. UP did not assert its rights upon the plant’s first closing. But the contract included a “no waiver” clause, which provided that a party did not waive a right by not insisting upon it. A no-waiver clause can itself be waived, said the Court, but only with clear and convincing evidence. Such evidence was not present in the case. The Court also noted the lack of any evidence that WEPCO was harmed by the late notice. There was no dispute over the existence of the plant’s closing and WEPCO presented no evidence that it could have developed less expensive alternatives had it been put on notice. The Court even noted that WEPCO saved $7 million due to UP’s decision not to give notice of force majeure in 2001.

The Court also rejected WEPCO’s claim that UP’s failure to ship 100% of its requested tonnage was a breach of the agreement. The contract required UP to make “good faith reasonable efforts” to meet WEPCO’s demand. The Court concluded that UP’s decision to ship to other customers, even ones who might be paying more for the shipments, did not constitute a lack of good faith. A lack of good faith requires evidence of lack of diligence, a willful failure to perform, abuse of power, or interference with performance – none of which were presented here.
 

• Email This
• Print
• Comments
• Trackbacks

SCHMUDE v. TRICAM INDUSTRIES, INC. (February 17, 2009)

Kevin Schmude, a 350-pound man, was working on a construction project. He climbed an 8-foot ladder manufactured by Tricam Industries, Inc. (Tricam) to in order to inspect electrical connections in the space above a ceiling. He and the ladder collapsed onto the floor. One of the rivets designed to secure the rear leg was found on the floor. The leg itself had separated from the ladder. A jury found for Schmude and awarded $677,000 in damages. Tricam appeals.

In their opinion, Judges Posner, Ripple and Rovner affirmed. The Court first summarily rejected Tricam’s arguments concerning a minor discrepancy between plaintiff’s expert’s report and testimony and the expert’s demonstration using the ladder. The Court gave greater consideration to Tricam’s objection to the limitations the trial court put on its ability to impeach Schmude with evidence of a prior conviction. Schmude had been convicted in 1995 of the sale, by a felon, of firearms without a license. F.R.E. 609(b) allows evidence of the conviction of a felony more than ten years old for impeachment purposes only when the probative value outweighs the possible prejudice. The trial court ruled that Tricam could impeach Schmude with evidence of the conviction, but would not allow evidence that the felony was actually predicated on yet another, earlier felony. The Court appreciated the significance of the issue – Schmude’s testimony was the only direct evidence of the cause of the fall and the extent of his pain. The Court also appreciated the trial court’s dilemma – without approaching the issue the way he did, the jury would either hear evidence that Schmude had been convicted of two felonies or would hear no evidence of a conviction. The Court concluded that the trial judge made a reasonable choice under the circumstances. Finally, the Court also upheld the trial court’s refusal to allow Tricam to put on certain evidence of Schmude’s anti-social personality. The Court agreed that the evidence in question had no probative value and would have been extremely prejudicial to Schmude.

• Email This
• Print
• Comments
• Trackbacks

HK SYSTEMS v. EATON CORPORATION (January 28, 2009)

IBP owned a large beef-processing plant in Nebraska. It wanted to replace its material handling system at the plant. Alvey and an Eaton Corporation (“Eaton”) subsidiary submitted the successful joint bid. During the contract negotiations, Eaton sold its subsidiary to HK Systems, Inc. (“HK”). The contract of sale contained broad cross-indemnities. A month later, IBP and HK entered into a contract for the purchase of the system. IBP was not satisfied with the speed at which the system operated and sued HK in state court. IBP alleged fraud, based on a system-speed representation made by Eaton before it sold its subsidiary, and breach of contract, based on a system-speed provision of the contract. The suit was settled for $8 million, $5 million from Alvey and $3 million from HK. HK brought this suit against Eaton for indemnification. Eaton argued that HK’s loss had been caused by HK’s own actions, not Eaton’s. The court originally denied summary judgment and judgment as a matter of law. A jury awarded HK $3 million. The court reconsidered the earlier motion for summary judgment and granted it. HK appeals.

In their opinion, Judges Posner, Ripple and Evans affirmed. The Court first noted that there was nothing improper in the district court’s reconsideration of it summary judgment ruling. Eaton had not preserved its argument that HK was responsible for its loss in its motion for judgment as a matter of law. Although the doctrine of the law of the case normally counsels against a judge reconsidering an earlier ruling, the district court does have discretion to do so when it is convinced that its earlier ruling was wrong and no harm will result. Here, the Court observed that the trial judge ruled on the meaning of the indemnification clause, which he considered a question of law. On reconsideration, he ruled that Eaton was not liable for HK’s loss because the contract between HK and IBP was an intervening cause. The Court agreed with the district court’s view on reconsideration, although it preferred framing the issue in terms of responsibility rather than cause. In any multiple factor case, responsibility is determined by reference to policy. Sometimes intervening acts are enough to shield one from liability – other times not. The Court referred to the contract between HK and Eaton. It contained mirror-image indemnification provisions. If Eaton was liable to HK for certain losses due to its representations, then HK was liable to Eaton for the loss it suffered because of its act – signing the contract – that occurred after the sale. The Court found that the district court’s resolution of this dilemma by adopting a narrow reading of the indemnity was consistent with the Court’s earlier decision holding that an indemnity will normally not apply, without explicit language, to a breach of contract claim for a contract entered into after the indemnity. The Court explained the policy reasons for such a holding. A party is typically in control of its contracts and performance. One should not be able to insure or acquire an indemnity to protect against liability for a breach when the one most able to protect against a breach is the very person insured. Here, HK should have made sure that its new subsidiary was capable of performing its contractual obligations to IBP before entering into the agreement. It cannot shift that liability to Eaton.

• Email This
• Print
• Comments
• Trackbacks

ORLANDO RESIDENCE v. GP CREDIT (January 22, 2009)

Twenty-two years and $3 million in legal fees and this dispute continues. Samuel Hardige and Kenneth Nelson settled a dispute in the early 1980s. Hardige gave some property to Nashville Residence Corporation (“NRC”), a company belonging to Nelson, in exchange for a promissory note secured by the property and payable to Orlando Residence, Ltd. (“OR”). NRC failed to pay the note when due. OR sued NRC on the note and obtained a judgment. But NRC had already conveyed the property to Nashville Lodging Company (“NLC”), which in turn conveyed it to Metric Partners. In 1992, OR sued Nelson and several companies controlled by him, including NRC, in Tennessee state court. Fourteen years, three trials, three appeals, and two remands later, OR had final judgments against Nelson and his companies. Meanwhile, OR purchased the subject property at a judicial sale for $100,000 – which amount was deducted from his judgment. On another track, GP Credit bought NLC’s personal property at a foreclosure sale. The personal property included a lawsuit against Metric Partners. Although OR tried to reach the proceeds of that lawsuit, GP Credit prevailed in an action to clear its title (which was affirmed by the Seventh Circuit). After GP Credit cleared its title, OR obtained a default judgment against GP Credit on the theory that it was the alter ego of Nelson.

OR brought a suit in Tennessee state court to collect on its judgment. It named Nelson and his wife, a pension plan, NLC, and GP Credit. GP Credit counterclaimed for restitution, intentional interference, slander of title, and unjust enrichment. The case was removed and transferred to Wisconsin federal court. Susan Nelson brought a separate suit in the same court to quiet title to her property. The district court rejected all claims in both suits. Susan Nelson and all parties to the transferred suit appeal.

In their opinion, Judges Posner, Kanne and Rovner affirmed in part, reversed in part and remanded. The Court first addressed OR’s appeal. The district court had dismissed OR’s claim against GP Credit because it thought it conflicted with the Court’s earlier ruling on GP Credit’s appeal. The Court disagreed. The basis of OR’s earlier attempts to get the proceeds of the lawsuit was its claim against NLC. The current claim is a direct claim against GP Credit, as alter ego, to collect the judgment against Nelson. The Court saw no conflict with the earlier ruling. The Court next addressed GP Credit’s counterclaims. Its first is for the value of the property sold at the judicial sale. GP Credit claims it is worth more than the $100,000 it brought. The Court held that the Tennessee appellate court’s approval of the sale is res judicata. It specifically rejected GP Credit’s claim that the decision could be attacked collaterally because the lower court in Tennessee never had subject-matter jurisdiction. If a court authorized to decide the kind of case in which the issue arises decides a jurisdictional issue in a full and fair hearing, it is entitled to collateral estoppel effect. GP Credit’s second counterclaim arises out of Metric Partners’ offer to settle the very lawsuit to which GP Credit successfully cleared its title. Metric Partners conditioned an offer to settle on OR dissolving its receivership. When OR refused, the case settled for much less. The Court found GP Credit’s claim for the difference frivolous. OR had no obligation to dissolve the receivership solely for the benefit of GP Credit. The Court also rejected GP Credit’s slander of title and restitution claims for the same reasons it rejected the first two counterclaims. Finally, on Susan Nelson’s appeal of her action to quiet title, the Court noted that OR had filed an earlier suit in state court in an effort to reach Mrs. Nelson’s property. When two in rem suits regarding the same res are pending in different courts, the court of the later-filed suit should dismiss.

• Email This
• Print
• Comments
• Trackbacks

STARK TRADING v. FALCONBRIDGE LIMITED (January 5, 2009)

Brascan Asset Management (“Brascan”) owned 41% of the common stock of Noranda, Inc. (“Noranda”). Noranda owned, in turn, 59% of Falconbridge, Inc. (“Falconbridge”). Noranda and Falconbridge were both large Canadian mining companies. In March 2005, Noranda offered the minority shareholders in Falconbridge 1.77 shares of Noranda stock for each share of Falconbridge. The offer was conditioned on being accepted by holders of more than half of Falconbridge’s shares. The plaintiffs (two hedge funds) bought Falconbridge shares in the months leading up to the tender-offer expiration date in May. The plaintiffs believed that Falconbridge was grossly undervalued. Before the expiration of the tender-offer, the plaintiffs learned of many problems in the transaction. They expressed their concerns to the Canadian regulators. They exposed a conflict of interest at the investment bank that did the valuation of Falconbridge and in the internal Falconbridge committee that considered the valuation. They also warned that Noranda overstated the value of its own shares. The plaintiffs tendered their shares and the tender-offer succeeded. A few months later, Noranda and Falconbridge merged. Shortly thereafter, another mining company offered to buy the merged company for a price substantially above the tender-offer price. The plaintiffs brought this action against both the merged company and Brascan. The suit was based on the SEC’s Rule 10b-5 and section 11 of the Securities Exchange Act. The district court dismissed the suit for failure to state a claim. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Tinder affirmed. The Court first addressed the Rule 10b-5 fraud claims. A claim of fraud cannot be maintained without proof that the plaintiffs relied on the misleading misrepresentations or omissions of the defendant. The Court concluded that plaintiffs were not deceived. They knew Falconbridge was undervalued, they knew the offer was too low, and they knew that Noranda engaged in fraud. They did not try, however, to influence other minority shareholders or even to publicly disclose the information. What they had wanted was a higher offer. Not getting it and worried about the lack of minority shareholder protection under Canadian law, they tendered their shares. Other investors may have been deceived but the plaintiffs actually saw through the fraud. The Court agreed that they could not maintain a 10b-5 action. With respect to the §11 claim, the Court noted that it does not require reliance. A person may bring an action under §11 if the registration statement of the security contains an untrue statement or material omission. The plaintiffs fare no better under §11, however, than they did under 10b-5. The measure of damages is the difference between the purchase price paid by the plaintiff and the share price when it was sold or at the time of the suit, if still owned. Here, the value of the plaintiffs’ investment was higher at the time of the suit than when they purchased the shares.

• Email This
• Print
• Comments
• Trackbacks

MIRFASIHI v. FLEET MORTGAGE (December 30, 2008)

This suit was originally brought years ago on behalf of 1.6 million people whose mortgages were owned by Fleet Mortgage Corporation (“Fleet”). The allegations of the class action complaint are that Fleet shared personal information from the class members’ mortgage files with telemarketers, in violation of the Fair Credit Reporting Act (“FCRA”) and various state laws. The class was divided into a very large class of persons whose information was shared but who purchased nothing as a result (the “non-purchasers”) and a small (~190,000) class of people who did make purchases (the “purchasers”). The court certified the class and approved a settlement in 2002. The settlement provided nothing to the non-purchasers. The Seventh Circuit reversed and remanded, at the request of two intervening objectors. On remand, the court again approved a settlement. Again, the non-purchasers received no direct benefit. The court concluded that their claims were of no value. Fleet was required, in addition to the payment to the purchasers, to make a payment of at least $243,000 to organizations concerned with consumer privacy issues. The Seventh Circuit again reversed on the grounds that the court’s valuation of the non-purchasers’ claims was inadequate. On remand, the court conducted a more thorough survey of the state consumer protection laws and, once again, concluded that the non-purchasers’ claims had no value. The court awarded class counsel $750,000 and objectors’ counsel $18,750 in fees. The objectors appeal.

In their opinion, Judges Bauer, Posner and Williams affirmed. The Court first noted that no member of the non-purchasers class suffered actual harm. Although nineteen states and the District of Columbia allow individual (not class) actions with statutory penalties ranging from $25-$10,000, the parties failed to identify one person who would bring such an action. Although the Court noted that the state law limitations on class actions may not be binding in federal court, it held that the objectors waived any right to raise that issue. The Court also held that the objectors forfeited any claim that FCRA provided a statutory penalty remedy for the non-purchasers, adding, however, that such a claim would be frivolous. Concluding that the non-purchasers’ claims were indeed worthless, the Court approved the $243,000 settlement.

The Court used objectors’ counsel’s request for additional fees to again express its frustration with the inherent conflicts in class actions. (For another recent expression of Judge Posner's frustration, see his opinion in Thorogood here and my summary here.) One of those conflicts resulted in objectors’ counsel exaggerating the value of the non-purchasers’ claims in order to be entitled to an award of fees. Here, objectors’ counsel asked that the $750,00 awarded to class counsel instead be awarded to him. The Court conceded that objectors do frequently assist the class action settlement process, but an award of fees must be balanced by their degree of success. Here, the objectors extended the litigation by years. They improved to some degree the value of the purchasers’ settlement but did not do much to improve the settlement for the non-purchasers. They did not participate constructively in the litigation – in fact, they conducted themselves irresponsibly. The Court approved as “barely justified” the fee awarded below.

• Email This
• Print
• Comments
• Trackbacks

ILLINOIS BELL v. GLOBAL NAPS ILLINOIS (December 22, 2008)

Illinois Bell (“Bell”) alleged that Global NAPs Illinois (“GNI”) violated Bell’s federal tariffs, its state tariffs, and the interconnection agreement between them. Bell named as defendants GNI, its parent Ferrous Miner Holdings (“FMH”), and four other affiliated companies. The district court found it did not have personal jurisdiction over FMH and that Bell’s evidence of a “piercing the corporate veil” theory was not sufficient to confer that jurisdiction. The court dismissed FMH and entered a Rule 54(b) final judgment. Bell appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed and remanded. The Court first addressed a threshold jurisdictional issue. Bell asserted that federal jurisdiction existed under federal question jurisdiction – as a suit to enforce a federal tariff – and under diversity jurisdiction – as a suit between an Illinois corporation and non-Illinois parties. Although either would be sufficient to maintain the action, the Court addressed both. It noted that jurisdiction of the state law claims would be mandatory under diversity jurisdiction but merely discretionary under federal question jurisdiction. The Court quickly resolved the issue of diversity. GNI claimed that its principal place of business was Illinois because it was the only state where it was licensed to do business and had interconnection facilities. It is the location of the “nerve center” that constitutes a company’s principal place of business, said the Court. GNI admitted it had no office or employees in Illinois. Its principal place of business was Massachusetts – complete diversity existed. The Court then rejected GNI’s argument that the integration clause of the interconnection agreement foreclosed federal question jurisdiction. Although supposing that a broader integration clause could convert a federal tariff claim into a state contract claim, the Court found the integration clause between Bell and GNI too narrow to do so. In any event, its conversion into a contract claim would not affect jurisdiction. Under the well-pleaded complaint rule, the suit to enforce a federal tariff would arise under federal law.

The Court engaged in a lengthy discussion regarding the merits of a “primary jurisdiction” referral to the Illinois Commerce Commission. The Court believed that the interpretation of the interconnection agreement should be conducted there, while the federal court stayed its proceedings. However, the Court determined that referral to be premature. The Court felt obligated to first address the piercing the corporate veil issue. The Court determined that the district court misunderstood the parties’ positions. The district court addressed whether FMH’s “veil” could be pierced – but Bell wanted to pierce the veil of GNI to get to FMH. FMH argued that Bell had to prove fraud. The Court held otherwise. Delaware law permits piercing the veil upon proof of fraud or that the corporation was a mere facade. FMH did not deny that GNI had no assets. The Court concluded that Bell had produced enough evidence to bring FMH within the personal jurisdiction of the court – so that the court could determine whether to pierce its veil.

• Email This
• Print
• Comments
• Trackbacks

BOIM v. HOLY LAND FOUNDATION FOR RELIEF AND DEVELOPMENT (December 3, 2008)

David Boim was a Jewish teenager living in Israel. He had dual Israeli/American citizenship. In 1996, he was killed by gunfire near Jerusalem. Boim’s parents brought suit under 18 U.S.C. § 2333(a). They alleged that defendants Muhammad Salah, Holy Land Foundation for Relief and Development (“HLF”), the American Muslim Society (“AMS”) and the Quranic Literacy Institute (“QLI”) all provided financial support to Hamas and that their son had been killed by Hamas gunmen. The district court rejected the argument that financial assistance was not international terrorism under § 2333(a) in denying defendants’ motion to dismiss. On an interlocutory appeal, the Seventh Circuit affirmed. The district court granted summary judgment on liability to plaintiffs with respect to Salah, HLF and AMS. A jury found QLI liable and assessed damages against all defendants of $52 million before trebling. On appeal, a Seventh Circuit panel vacated and remanded to redetermine liability. The plaintiffs petitioned for rehearing en banc, which was granted.

In their opinion, the Court affirmed in part, reversed in part and remanded. The Court first addressed whether the statute even applies to defendants who are alleged only to have provided financial support to those engaged in terrorism. The statute does not specifically mention secondary liability and the Supreme Court in Central Bank of Denver held that a statute that did not mention secondary liability did not create secondary liability. Instead of resolving that issue directly, however, the Court explored an alternative approach. It parsed the language of sections 2331, 2332, 2333 and 2339. Section 2333 creates a cause of action for a person injured “by reason of an act of international terrorism.” Section 2331 includes in the definition of international terrorism “acts dangerous to human life” that violate the U.S. criminal law. The Court concluded that financial assistance to Hamas is an “act dangerous to human life” and violates section 2339. Section 2339 was enacted in 1994 and makes it a crime to provide “material support” knowing that it could be used in carrying out a violation of section 2332. Section 2332 criminalizes the killing of an American citizen outside the U.S. The Court followed this chain to determine that a mere financial contribution to a terrorist organization could violate section 2333. Having determined that the defendants could be liable, the Court proceeded to examine the cause of action and its elements. On the element of intent, the Court held that the defendants must either have known or been deliberately indifferent to whether the organization they funded committed terrorist acts. Given the extreme conduct of the terrorist groups, the Court concluded that it was enough to know the character of the organization. With respect to causation, the Court held that the knowing contributors could not avoid liability on causation because, as a whole, they significantly increased the possibility that Boim would be a target of a Hamas terrorist act.

Applying these principles to the facts of the case, the Court addressed each defendant’s liability. It reversed with respect to HLF. The district court had erroneously applied principles of collateral estoppel from earlier litigation to the liability of HLF. The Court remanded for an analysis of HLF’s liability in light of its opinion. The Court reversed outright the findings as against Salah. Salah had been in custody during the period between the enactment of section 2339(a) and the shooting of Boim and could not have provided material support to Hamas during that time. The Court affirmed the findings as against defendants AMS and QLI. It found sufficient evidence that AMS knew that Hamas was a terrorist organization and that it provided material support to Hamas. QLI had elected not to participate in its trial and therefore could not object to the jury instructions or findings.

Finally, the Court addressed the lower court’s determination that the men who killed Boim were members of Hamas. The principle evidence on that point was the affidavit of an expert witness, Dr. Paz. Paz, an expert on terrorism, based his conclusion on terrorist internet sites, notes from a U.S. foreign service officer, and an Islamic-language document purporting to reflect the conviction of one of the murderers. The Court conceded that much of the evidence on which Paz relied was inadmissible. Noting that experts are not limited to admissible evidence in forming their opinions, the Court concluded that the type of evidence on which Paz relied is relied on by security and terrorism experts generally. The Court also noted that the defendants did not introduce any evidence to the contrary. The Court found no error in the lower court’s consideration of the affidavit.

Judge Rovner wrote separately, concurring in part and dissenting in part. Judge Rovner took principal exception to the majority’s conclusions with respect to causation and the Paz affidavit. She believed that the majority practically eliminated a causation requirement. She would have at least required expert testimony regarding the financial structure of Hamas and the various organizations it controlled. With respect to Paz, she criticized the majority for not only allowing the affidavit based on unproven evidence but for allowing it to support summary judgment. She noted that the defendants are not required to rebut factual propositions on which plaintiff has the burden of proof and has not properly supported. Judge Rovner would remand with respect to all defendants.

Judge Wood also wrote separately, concurring in part and dissenting in part. Judge Wood principally criticized the majority for its treatment of causation with respect to AMS and QLI. She concedes that “but-for” causation is sometimes not necessary, but she noted that the majority also eliminated the requirement for “sufficient” cause and apparently put little limitation on the remoteness of liability. Judge Wood would require at least proof that AMS and QLI contributed a “non-trivial” sum of money to an organization that was sufficiently connected to Hamas that the money indirectly supported Hamas’ terrorist mission. She also would impose a proximate cause limitation on the acts of the defendants, which the majority did not do. Judge Wood also disagreed with the majority’s statements on the scope of liability under the statute, calling it “awfully vague.” Finally, she disagreed with the treatment of the Paz affidavit and would remand to allow plaintiffs to meet the threshold requirements of Rule 702.

• Email This
• Print
• Comments
• Trackbacks

ILLINOIS BELL TELEPHONE CO. v. BOX  (November 26, 2008)

Illinois Bell Telephone Co. (“Illinois Bell”) is a provider of local telephone service. The Illinois Commerce Commission (“ICC”) ordered Illinois Bell to provide certain elements of service, including access to switching centers and splitting, to competing carriers at its cost. Illinois Bell brought suit against the Commission to be relieved of that obligation. The district court granted summary judgment to Illinois Bell. The ICC and intervenor Globalcom, Inc. appeal.

In their opinion, Judges Posner, Ripple, and Evans affirmed. The Court first noted the federal interest and approach to the telecommunication industry. Congress and the FCC have established certain requirements to promote competition in the industry. Section 251 of the Telecommunications Act of 1996 (“Act”) requires carriers like Illinois Bell to provide certain services to other carriers on an unbundled basis and at cost. The FCC determines which services are included, after considering whether access is necessary and whether denial of access would impair the requesting carrier’s ability to provide its service. If the FCC decides a service meets the section 251 criteria, a carrier can request the service from carriers like Illinois Bell at its cost. Section 271 of the Act also entitles carriers to gain access to other unbundled services from “Bell Operating Companies” such as Illinois Bell. Unlike section 251, however, section 271 does not require that access be provided at cost. The FCC allows a carrier to charge a market rate for section 271 services.

The Court found that the ICC’s order that Illinois Bell provide services at cost was inconsistent with Sections 251 and 271. The Court noted that the ICC was, in effect, overruling the FCC. The Court pointed out that the savings clause of section 251 allowed state orders that were consistent with and did not prevent implementation of the section. The Court concluded that the ICC’s orders were inconsistent with and did substantially prevent the implementation of the federal policy. The Act does not specifically forbid the requirement imposed by the ICC but to allow it would defeat the goals of the FCC. The Court concluded that only network services identified by the FCC under section 251 are required to be provided at cost. Other services, even if required to be provided, can be charged at a market price. 

• Email This
• Print
• Comments
• Trackbacks

SANDAGE v. BOARD OF COMMISSIONERS (November 24, 2008)

Sheena Sandage-Shofner twice called the sheriff’s department in Vanderburgh County and complained that a man named Moore was harassing her. Moore was in the sheriff’s custody, serving a prison term for robbery. Sandage-Shofner’s complaints arose at times when Moore was out of prison on work release. Two days after her second complaint, Moore murdered Sandage-Shofner and two other people and then took his own life. Christine Sandage and Arthur Shofner brought a suit under § 1983, claiming that the County’s failure to reimprison Moore deprived their decedents of their lives without due process in violation of the Fourteenth Amendment. The district court dismissed for failure to state a claim. Sandage and Shofner appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Rovner affirmed. Relying principally on the Supreme Court’s decision in DeShaney, the Court held that there is no federal constitutional duty to protect the citizenry from private violence, nor is there a right to be rescued from a danger that was not created by the government. There is a right not to be harmed, a right illustrated, for example, by prisoner cases alleging deliberate indifference to medical needs. Here, the Court concluded, the government did not restrict Sandage-Shofner’s access to aid and it took no affirmative steps that increased the danger to Sandage-Shofner. It simply failed in its moral obligation to protect its citizens from private harm, for which there is no federal constitutional remedy.

• Email This
• Print
• Comments
• Trackbacks

MUHAMMAD v. OLIVER (November 10, 2008)

The Dennis Muhammad Community and Economic Development Corporation (“MDC”) is a Chicago-based minority business enterprise. It entered into a joint venture agreement with CDA Management (“CDAM”). The purpose of the venture was to bid on a contract to install air conditioners in Chicago Housing Authority (“CHA”) buildings. Their bid was successful but the relationship quickly soured. In 2002, MDC sued CDAM and the related non-profit Chicago Dwellings Association (“CDA”). MDC alleged, in a state court action, that the defendants breached the joint venture agreement by not allowing MDC to do the work it had agreed to do. The court granted CDA’s motion to dismiss on the ground that CDA was not a party to the agreement. Later, on MDC’s own motion, the court dismissed MDC’s complaint against CDAM without prejudice. In 2007, MDC brought suit in federal court against CDA, CDAM, and Christine Oliver. Oliver was the CEO of both CDA and CDAM. MDC repeated the same allegations it had made in the earlier state court suit. It added an allegation under § 1981 that the defendants had used MDC as a “minority front” to increase their chances of success on the bid for the CHA contract. The district court dismissed CDA and CDAM on res judicata grounds and dismissed Oliver because she was not a party to the joint venture. MDC appeals.

In their opinion, Judges Cudahy, Posner, and Rovner affirmed. The Court observed that, although the two complaints relied to some extent on different legal theories, they did both arise out of the same facts. When a prior case arising out of the same facts is abandoned after an adverse ruling, as the Court concluded the state court suit was, the judgment generally bars a later suit. When there are multiple defendants, as is here, the bar against one operates as a bar against all, if they arose out of the same facts. The Court found that all three defendants were alleged to be in violation of § 1981 for the identical conduct. The Court concluded that the earlier suit barred the federal complaint against all defendants. The Court also rejected MDC’s argument that there had been a stipulation to reserve all rights upon dismissal. The Court concluded that there was no evidence, or even allegation in the complaint, of such an agreement. Finally, the Court rejected MDC’s claim that the lower court erred by dismissing on res judicata grounds when a) the defendants never raised it and b) it is not one of the FRCP 12(b) defenses that are allowed to be raised by motion . The Court held that the dismissal was proper. The application of res judicata eliminates unnecessary lawsuits. It can be raised by the court on its own motion. Also, when an affirmative defense like res judicata is shown on the face of the complaint, it can be dismissed on motion.

The Court did conclude that the court below erred in dismissing Oliver on the grounds that she was not a party to the joint venture agreement. A claim of tortious interference with contractual rights on account of race does state a cause of action under § 1981. Nevertheless, Oliver is still entitled to dismissal. First, the Court pointed to its prior discussion of res judicata. The dismissal of the state court complaint barred a cause of action against any defendant arising out of the same facts. Oliver’s does. Second, when liability rests on the doctrine of respondeat superior, as it does here, the plaintiff cannot bring an action against the “servant” (Oliver) when judgment has already been entered for the “master” (CDA, CDAM). Third, and most significantly, the Court concluded that the complaint did not actually allege tortious interference on account of race. The Court stated that the allegation that the defendants included MDC to gain a bidding advantage, and then cheated them out of that advantage, did not allege racial discrimination. The Court observed that it was greed, not discrimination, that drove the defendants’ decision. The district court’s result was correct. 

• Email This
• Print
• Comments
• Trackbacks

ATKINS v. CITY OF CHICAGO (November 10, 2008)

William Atkins was a passenger in a car driven by his brother Adam in October, 2003. A Chicago police officer stopped the car and arrested William on a parole violation warrant with his name. William professed his innocence. He continued to insist he was the “wrong man” but never asked to see a lawyer or took any legal action. He was released – thirty seven days later. He brought an action under 42 U.S.C. § 1983 against the arresting officers and prison guards, among others. He alleged that his arrest was unlawful, that he was mistreated in prison, and that the Department of Corrections lacked procedures for identifying cases of mistaken identity. Adam joined in the suit as far as it complained of the arrest. Both Atkins brothers were represented by the same lawyer. In December of 2006, the lawyer filed a document captioned a “Motion to Substitute” that alerted the court to the untimely death of William. The lawyer stated that he was going to open an estate so that William’s wife Brandie could continue the lawsuit. The district court denied the motion. There was no one yet with proper status to substitute. After 90 days, the defendants moved to dismiss on the grounds that no substitution had been made within 90 days of a “suggestion of death.” The court allowed an additional month for a proper substitution. The day before the new deadline, Atkins’ lawyer filed a motion to substitute Mrs. Atkins, but she was still not yet named as his personal representative. The district court dismissed William’s case. An Illinois probate court appointed Mrs. Atkins as personal representative of William’s estate about ten days later. Mrs. Atkins appeals the district court’s dismissal.

In their opinion, Judges Posner, Flaum, and Evans reversed and remanded. The Court rejected Mrs. Atkins' arguments that the delay was excusable and that the suggestion of death did not start the 90-day clock because it was unauthorized. The Court did hold, however, that the suggestion of death did not start the clock because FRCP 25(a) requires service. Although the rule does not specifically identify the non-parties on whom service is required, the Court concluded that it certainly includes the deceased’s successors or personal representatives. Since Mrs. Atkins had the largest stake in maintaining the case, she had to be served. The Court recognized that Mrs. Atkins clearly knew of her husband’s death and it saw no indication that the Motion for Substitution was filed without her knowledge or authorization. Nevertheless, the rule requires service and her knowledge does not excuse the lack of service. The 90-day clock has not started. Mrs. Atkins should be allowed to proceed as plaintiff.

• Email This
• Print
• Comments
• Trackbacks

U.S.O. CORP. v. MIZUHO HOLDING CO. (October 28, 2008)

U.S.O. Corp. (“USO”) is incorporated in Delaware but is the wholly-owned subsidiary of a Japanese company. Its headquarters are in Japan. USO invested in a limited partnership. Like USO, the partnership was incorporated in Delaware. It also had its principal place of business in Japan and the partners all had addresses in Japan. The partnership invested in another partnership, which acquired a building in Chicago, Illinois. The partnership held the building investment for ten years. USO sued Mizuho Holding Co. (“Mizuho”) and alleged that Mizuho failed to pay the amounts due to USO during its investment and misappropriated USO’s portion of the proceeds of the sale of the building, almost $7 million. The acts complained of occurred mostly in Japan. Most of the witnesses and record evidence exists in Japan. Mizuho brought a declaratory judgment suit in Japan raising the same issues, albeit eight months after USO sued in the United States. The district court dismissed the suit based on forum non conveniens. USO appeals.

In their opinion, Judges Posner, Ripple, and Evans affirmed. The Court thought that Mizuno’s case that it would be unreasonably burdened to have to defend in the United States was “compelling.” USO argued that its choice of forum, particularly as an American company, should not be rejected lightly. The Court did not question the existence of a presumption in favor of plaintiff’s choice of forum. But it also noted the many legal principles that limit a plaintiff’s choice – jurisdiction, venue, and removal, to name a few. The Court looked to the Supreme Court’s decision in Piper Aircraft Co. v. Reyno for guidance. There, the Supreme Court held that dismissal is proper, even for an American company, if the balance of conveniences demonstrates that the defendant would be burdened by being forced to litigate in the plaintiff’s chosen forum. The deference to Americans is not based on nationalism but on the assumption that a home forum is more convenient to an American than it likely would be to a foreign company. The Court noted that USO was not really “American” except through incorporation. The assumption of convenience did not apply in its case. Here, the Court listed a host of reasons to dismiss: a) the presence of witnesses and documents in Japan, b) the need for interpreters and translators if litigated in the U.S., c) the probable application of Japanese law, d) the pending, “well-advanced” case in Japan, and e) the refusal of the Japanese court to abate its case in favor of a U.S. case. Piper also directed the Court to look at how the public’s interest is affected. The public interest considerations include burdening an American jury with a wholly foreign dispute and forcing a court to struggle with Japanese law. The balance of conveniences and the public interest in this case clearly favor a dismissal.

• Email This
• Print
• Comments
• Trackbacks

WOOLARD v. WOOLARD (October 29, 2008)

John F. Woolard established a trust in 1983. His infant son, John C. Woolard, was the sole beneficiary. John F. named his brother Robert as trustee. The Trust Agreement allowed Robert to distribute its assets for the sole benefit of John C. The trust allowed Robert to apply payments directly for John C.’s benefit or, in his sole discretion, directly to John C. , to John C.’s legally appointed guardian, or to a Uniform Gifts to Minors Act custodian. It did not specifically allow direct payments to John F., although it did prohibit loans to him. John F. initially funded the trust with $500. At one point, it contained over $800,000. When John F. died in 2002, the value of the trust was $18,000. Between 1990 and 2001, Robert distributed more than $850,000 directly to John F. Robert kept no record of the purpose of the distributions and never asked John F. for receipts. John C. brought an action against Robert for mismanagement of the trust. The district court granted John C.’s motion for summary judgment. The court found that Robert had breached the express terms of the trust and had violated his statutory and fiduciary duties. Robert appeals.

In their opinion, Judges Bauer, Cudahy, and Williams affirmed. The Court found that Robert’s reliance on certain aspects of the Illinois Trusts and Trustees Act (“Act”) was misplaced. The Act simply provides default rules applicable to a trust that otherwise does not specify the trustee’s rights and duties. John F.s trust did specifically limit the trustee’s powers. Robert’s distributions to John F. were not allowed. In making those distributions, Robert breached the express terms of the trust. The Act requires a trustee to provide an annual accounting to the beneficiaries. The accounting must give the status of the funds, list all receipts and disbursements, and provide the source and purpose of all payments. A trustee’s failure to provide an accounting, observed the Court, is an independent cause of action. The Court rejected Robert’s argument that the monthly brokerage account statements were sufficient to constitute the accounting. The brokerage records did not indicate the purpose of any distribution from the account. Therefore, they cannot constitute an adequate accounting under the Act. Finally, the Court agreed that the record amply supported the finding that Robert breached his fiduciary duty. A trustee has an obligation to manage the trust pursuant to its terms and be as diligent as he would with his own affairs. The Court noted that Robert never even asked John F. for receipts or for an explanation of what he was doing with the money. The Court made a special note of the six months when John C. was seventeen when Robert distributed over $300,000 to John F. The record did not support any semblance of diligence by Robert.

• Email This
• Print
• Comments
• Trackbacks

THOROGOOD V. SEARS, ROEBUCK & CO.  (October 28, 2008)

Steve Thorogood bought a dryer at Sears, Roebuck & Co. (“Sears”). Sears’ point-of-sale literature stated that the drum inside the dryer was made of stainless steel. In fact, part of Sears’ dryer drum was made of a coated, non-stainless steel. Thorogood filed a class action on behalf of himself and other purchasers of the dryer in 28 states and the District of Columbia. He alleged that he thought that the entire drum was made of stainless steel, that the non-stainless part rusted and stained his clothes, and that Sears’ advertising was deceptive. Thorogood based his claim on the Tennessee Consumer Protection Act. The district court certified the class. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded for decertification. The panel started by observing some of the benefits of the class action procedure, as well as some of its downsides. One particular downside of some class actions, according to the Court, is the undermining of federalism. Thorogood’s case presented a good example. Thorogood was attempting to litigate 500,000 claims of residents of 29 jurisdictions in one federal court. These claims would be “wrested from the control” of those jurisdictions and their laws. The Court was troubled that certain procedural rules that govern the relief to which those 500,000 claimants would be entitled would be ignored. Specifically, for example, Tennessee’s consumer protection act does not allow a class action in state court. Although the Court recognized that the Tennessee rule did not prevent the class action from proceeding under federal law, the expansion of available relief did trouble the Court. The Court’s concerns led it to approach the class action aspect of the case with caution.

The Court found the case to be a particularly poor candidate for class action treatment. Not only did common issues of fact not predominate over individual issues of fact, the Court stated that there were no common issues of fact. Thorogood’s concerns about rust were “idiosyncratic.” The Court doubted that any of the other 500,000 claimants believed as he did. Each class member would have to individually establish, at a hearing, his or her: a) understanding of the meaning of the stainless steel advertising, b) reliance on the advertising’s meaning that the stainless steel drum would prevent rust stains, and c) damages. Since there was no common, single understanding of the advertising, the class should not have been certified. The Court did note a certain difficulty in determining individual relief as well. That difficulty could have been managed through an aggregate class relief approach, had the case been otherwise suitable for class treatment.  

• Email This
• Print
• Comments
• Trackbacks

LEISTER v. DOVETAIL, INC.  (October 23, 2008)

Sandra Leister and Michelle and Evan Peterson worked together at a company that provided employee assistance programs to employers. In 1997, the Petersons purchased some of their employer’s program contracts and formed Dovetail to administer those contracts. They hired Leister, a psychologist, to work for Dovetail. As one of the benefits of employment, they agreed to deposit a percentage of her salary into a 401(k) account. They complied with their promise for about a year and then began diverting Leister’s money to their own benefit. They also refused to provide Leister with documentation of her rights under the plan. Leister brought this action under ERISA to recover the contributions that Dovetail was obligated to make to her account and for statutory penalties. The district court found a willful breach of the defendants’ fiduciary duties and awarded Leister $82,741 for the contributions not made. The court declined to impose statutory penalties for the Peterson’s failure to provide plan documents, relying on their dire financial circumstances. The defendants and Leister each appeal.

In their opinion, Judges Bauer, Posner, and Williams affirmed in part, reversed in part, and remanded. The Court first addressed two preliminary matters – whether there was enough of a writing to satisfy ERISA and the impact of Leister’s failure to name the plan as a defendant – and resolved each of them in Leister’s favor. It then proceeded to the statute of limitations issue. ERISA complaints are governed by two limitations provisions. Complaints for breach of a fiduciary duty under sections 1101 to 1114 must be brought within the shorter of six years from the breach or three years from the date when the plaintiff had actual knowledge of the breach. Complaints for benefits due under the plan pursuant to section 1132(a)(1)(b) are governed by the most analogous state limitations period, in this case Illinois’ ten-year statute for breach of a written contract. Leister sought relief under both sections 1104 and 1132(a)(1)(b), but the district court based its judgment only on section 1104. Since Leister’s complaint was filed more than six years after the defendants’ first breach, her recovery would be limited under 1104. The Court found that a) she was entitled to relief under both sections, b) she was entitled to more relief under section 1132(a)(1)(b), and c) she met the ten-year statute of limitations. Under 1132(a)(1)(b), Leister was entitled to the unpaid contributions as well as a reasonable estimate of their investment growth over time. The Court accepted Leister’s cross-appeal argument that the district court erred in not considering the tax-free status of the contributions. It directed the court to recalculate the benefits on remand.

Leister also “shoehorn[ed]” a claim for sales commissions into her ERISA claim. The Court found that the district court erred in treating it as an ERISA claim even though Leister alleged that she would have deposited the commissions into her 401(k) account. Nevertheless, the Court noted that the claim was also pleaded as a state law claim and would be considered in that context on remand. The Court offered guidance to the district court on the state law claim: a) it has a shorter limitations period than the ERISA claims because it is not a written contract, b) Leister cannot recover tax benefits as if she would have deposited the money into her 401(k), and c) an Illinois statute may allow for an award of attorneys’ fees. Lastly, the Court addressed Leister’s argument that the court erred in not awarding statutory penalties. The Court observed that penalties, in whatever form, are meant to deter. Although deterrence can be achieved with smaller awards against poorer defendants, an award of no penalties against a solvent defendant who commits a willful breach is unreasonable. The district court’s decision was an abuse of discretion.

• Email This
• Print
• Comments
• Trackbacks

ORTH v. WISCONSIN STATE EMPLOYEES UNION  (October 22, 2008)

Ron Orth retired in 1998. The collective bargaining agreement covering his employment required his employer to provide health insurance to retirees. It also required the employer to pay 90% of the premium. Finally, it stated that the monetary value of an employee’s unused sick leave upon retirement, if any, would be used to pay the employee’s share of the premium. Notwithstanding these provisions, the benefits plan of Orth’s former employer deducted all of the premium amounts from Orth’s sick leave account, using it up in eight years. Orth brought this action, with his wife, against his former employer and its benefits plan, alleging that they violated ERISA. The defendants admitted that the terms of the written plan were as alleged by the Orths but maintained that the plan had been modified through the conduct of the parties over time. The district court granted summary judgment to the Orths and awarded attorneys’ fees. The defendants appeal.

In their opinion, Judges Bauer, Posner, and Williams affirmed. The Court observed the general rule that a contract can be modified by the subsequent dealings of the parties. ERISA, however, requires that plans be in writing. The Court held that amendments to plans must be in writing as well. The ERISA plan, therefore, could not be amended by conduct. The Court went on to consider whether the fact that the plan was a creature of a collective bargaining agreement made a difference. Collective bargaining agreements are often modified orally or by subsequent dealings. Employees are not even parties to the agreements. A collective bargaining agreement can be modified without an employee’s consent, as it was here. The union does owe a fiduciary duty to its members, but the Orths do not complain of a breach of the union’s fiduciary duty. But, the Court went on, the welfare plan also owes a fiduciary duty to its participants. Although the plan can be changed without the consent of the participants, the change in this case was made without notice to the participants. That, said the Court, is a violation of the plan manager’s fiduciary duty to the participants (as well as a violation of law).

The defendants also quarrel with the award of damages and fees. The Court agreed that ERISA does not allow consequential damages, but it declined defendants’ invitation to characterize the award of premiums the Orths paid to maintain coverage after their sick leave account was drained as consequential damages. The Court roundly rejected defendants’ argument that the district court erred when it awarded fees on a finding of “no substantial justification” for their position. To the contrary, the Court said, it questioned whether the district court was even correct in its opinion that the defendants acted in good faith. Finally, the Court found no merit in defendants’ argument that the $41,000 fee award was excessive given that the damages awarded to the Orths was about the same. The Court found no error, remarking that one reason fee awards exist is to allow people with small losses the ability to recover those losses.

• Email This
• Print
• Comments
• Trackbacks

CLASSIC CHEESECAKE CO. v. JP MORGAN CHASE BANK  (October 17, 2008)

Classic Cheesecake Co. (“Classic”) is a bakery that successfully generated some interest from several Las Vegas casinos and hotels in its products. It needed additional capital to fund its expansion. In July of 2004, Classic’s principals made a pitch to Dowling, a vice president at JP Morgan Chase Bank (“Bank”). After receiving documentation, Dowling assured Classic that its loan would be approved, provided that one of its principals repaid an old student loan. Dowling continued to provide assurances to Classic as late as September 19. Meanwhile, as early as August 19, Dowling’s superior at the Bank advised her that he was “still declining” the request for funds. Dowling finally advised Classic on October 12 that the loan was not approved. [These are allegations of the complaint, taken as true.] Classic brought suit under the Equal Credit Opportunity Act (“ECOA”) and for breach of contract under Indiana law. It alleged losses of more than $1 million. The district court resolved the ECOA claim in Classic’s favor (with only modest relief) but dismissed the breach of contract claim.  Classic appeals. 

In their opinion, Judges Posner, Flaum, and Evans affirmed. The Court first rejected Classic’s attempts to cast the controversy as one of simple promissory estoppel or fraud. It limited Classic to its breach of contract remedy. The Court turned to the Indiana statute of frauds. Although the statute of frauds requires that contracts to lend money be in writing, Indiana courts have created an exception. Oral agreements unenforceable under the statute of frauds will be enforced if a failure to enforce the agreement would create an “unjust and unconscionable injury and loss” that is independent of the benefit of the bargain. The Court’s task was to decide whether the allegations of Classic’s complaint could meet that standard. The task was not an easy one, given the “vague . . . and redundant” nature of the test and the relative dearth of case law. The Court explored some history of the exception to the statute of frauds:

• The California Supreme Court’s (Traynor, J.) 1950 decision in Monarco that first allowed promissory estoppel as a defense to the statute of frauds but only if “unconscionable injury or unjust enrichment” would otherwise result
• Restatement (Second) of Contracts section 139(1) which allows promissory estoppel as a defense if “injustice” is avoided but which Indiana has not embraced
• The only two cases (Madison Tool & Die and Keating) that survived summary judgment under the Indiana formula

The Court noted that Monarco contained an element of unjust enrichment but neither Madison nor Keating did. Each of the cases contained significant “reliance” losses beyond the loss of the contract bargain, but the Court said that simple reliance losses (i.e., promissory estoppel) certainly does not meet the Indiana test. The Court held that the Indiana test, a compromise between the policy behind the statute of frauds and the desire to protect reasonable reliance, requires proof of "enhanced" reliance. The common thread among Monarco, Madison, and Keating was a time factor. In each case, the reliance continued for a longer time (20, 3, and 1.5 years) than the few months at issue for Classic. The Court also observed that Classic’s reliance may not have been totally reasonable. The Court concluded that Classic did not meet the enhanced promissory estoppel test and the complaint was properly dismissed.

• Email This
• Print
• Comments
• Trackbacks

STEVO v. KEITH (October 1, 2008)

Allen Stevo would like to enter the 2008 race for a seat in the U.S. Congress from the Tenth Congressional District in Illinois as an independent candidate. Illinois law generally requires an independent candidate to submit with his or her petition a number of signatures equal to 5% of the number of votes cast in the district in the last election. This requirement does not apply, however, in the first election after each decennial census. Each census is followed by a redistricting, which prevents the application of the 5% rule since there is no prior voting history for the newly drawn districts. For these elections, Illinois requires a flat 5,000 signatures. The 2008 election is not such an election. A resident of the district challenged Stevo’s petition on the ground that it failed to meet the 5% requirement. Stevo admits that he does not meet the 5% target, but it is undisputed that he submitted in excess of 5,000 signatures. He filed suit, claiming that the 5% requirement denies equal protection of the laws and that the 5,000 signature requirement should be applied to all elections. The district court dismissed the complaint for failure to state a claim. Stevo appeals.

In their opinion, Judges Cudahy, Posner, and Flaum affirmed. The panel notes that Stevo does not challenge the 5% requirement in a vacuum. Instead, he argues that it is the acceptability of the 5,000 signature target in some circumstances that makes the 5% target arbitrary. Thus, the Supreme Court’s decision in Jenness v. Fortson, which held that a 5% requirement is permissible, does not control. The state’s position is that it must have a proxy for the 5% target after redistricting because it would be impossible to calculate in a newly drawn district. The Court, however, cited favorably to an Indiana procedure in which the votes from the individual precincts making up the new district are used to arrive at a fairly good approximation of the district vote. There are other reasons, however, for the state’s approach. The Court referred to the “disorienting” nature of a redistricting event, requiring both candidates and voters to adjust. It may be more difficult to get signatures in such an environment and thus Illinois imposes the reduced flat 5,000 signature requirement. The Court considered the approach Illinois took to reduce the signature requirement to be “crude.” In fact, in one district, the flat 5,000 signature requirement is actually more difficult to meet than the 5% would have been, because of the low number of voters in the district. Nevertheless, the Court considered Stevo’s solution at least as arbitrary, if not more so. The imperfect Illinois solution is now used only once in every ten years. Stevo would apply it to every congressional election. Not only is Stevo’s proposal not so far superior to the State’s as to implicate the Constitution, the Court found that is likely less superior.

• Email This
• Print
• Comments
• Trackbacks

GUSTAFSON v. ZUMBRUNNEN  (October 1, 2008)

George Skille, a citizen of Wisconsin, left most of his estate to his grandchildren and appointed one of them, Georgia Gustafson, his personal representative. After his death, Gustafson sued Skille’s widow (his second wife) in state court to recover money from a joint bank account for the estate. That suit was settled. Gustafson then brought suit in federal court seeking the balance of the account, attorneys’ fees from the first suit, and punitive damages. The suit named Skille’s lawyer (and the lawyer’s firm) and the bank where Skille and his wife had a joint account. The suit alleged that the lawyer had “tortiously interfered” with the grandchildren’s expectation of inheritance and that the bank had been negligent. The defendants were all citizens of Wisconsin, but none of the grandchildren were. The defendants moved to dismiss for lack of diversity on the ground that a legal representative of an estate is treated as a citizen of the state in which the decedent was a citizen under 28 U.S.C. §1332(c)(2). Gustafson responded by seeking leave to amend her complaint to name each of the eight grandchildren as plaintiffs, but none in a representative capacity. Once she realized that that would result in the individual demands falling below the jurisdictional threshold, she instead filed an amended complaint in which only one grandchild (Susan Gustafson) was named as a plaintiff, suing on behalf of the estate but not as a legal representative. The district court dismissed for lack of federal jurisdiction. Susan Gustafson appeals.

In their opinion, Judges Bauer, Posner, and Wood affirmed. The Court noted that Wisconsin law allows suits for tortious interference in these circumstances. It also allows a person with an interest in an estate to sue on behalf of the estate to recover assets for the estate - but only in the situation in which the personal representative has failed to do so. In that case, the suit would not be a suit by a legal representative and §1332(c)(2) would not apply. Here, although Georgia removed herself from the suit and is “failing” to recover assets that allegedly belong to the estate, she is doing so in collusion with Susan and Susan’s suit is on behalf of the estate. The Court also held that 28 U.S.C. §1332(c)(2) is not limited in its application to one person. Instead, it treats any legal representative of an estate as having the citizenship of the deceased. If it were otherwise, the Court warned, any estate could artificially manufacture or destroy diversity by naming a representative with the correct citizenship – a result counter to the purpose of the statute.

• Email This
• Print
• Comments
• Trackbacks