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

ADVENTIST GLENOAKS HOSPITAL v. SEBELIUS (December 15, 2011)

The federal Medicare program reimburses hospitals for the care they provide to eligible patients. The reimbursement amount is calculated through the application of a rather complicated formula. One element of the formula is a hospital’s "wage index," which, in turn, depends on the average hourly wage in the hospital's Metropolitan Statistical Area. The average hourly wage is computed using actual hospital wage and hour data. Most hospital employees are not paid for lunchtime. Some hospitals, however, pay their employees for a half-hour lunch. All other things being equal, including a half-hour paid lunchtime in the data results in a lower average hourly wage and less Medicare reimbursement. A number of hospitals asked the Secretary of the Department of Health and Human Services to exclude paid lunchtime hours from the formula. When she refused, the hospitals appealed to the Provider Reimbursement Review Board. The Board upheld the Secretary's decision. The hospitals sought review in the district court. Judge Guzman (N.D. Ill.) concluded that the Secretary's decision was not arbitrary or capricious or otherwise unlawful and granted summary judgment in her favor. The hospitals appeal.

In their opinion, Seventh Circuit Judges Cudahy, Manion, and Sykes affirmed. The Court first noted that its review was quite limited. The Secretary's decision will stand unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." The Court conceded that there was some logic in the hospitals’ position -- as did the Secretary. Indeed, the Secretary supported her decision principally on administrative convenience grounds. She decided to include not only paid lunchtime, but also other paid leave time such as military leave, jury duty, sick leave, etc. The last time the Secretary solicited public comment, there was significant disagreement among the commentators over how to treat things like paid lunchtime. Given that the Secretary has considered her alternatives and adequately explained her decision, the approach is reasonable and legal and will stand.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MILESTONE v. CITY OF MONROE (November 21, 2011)

The city of Monroe, Wisconsin (the "Swiss Cheese Capital of the U.S.A.") operates a Senior Center for its older residents. Nine volunteers sit on the Monroe Senior Citizens Board, which promulgated a Code of Conduct for the center. Edith Milestone used the center frequently, but not without incident. She was a frequent disruptive influence at the center and was warned about her failure to behave reasonably. In late 2008, she got into a heated discussion with the center's Director and threatened to sue her. The next day, the Center sent Milestone a letter advising her that she was no longer welcome. The letter listed the various alleged violations of the Center's Code. At Milestones request, the Senior Citizens Board held an evidentiary hearing and affirmed the ban. The Board also advised Milestone that she could appeal the finding to the Monroe Common Council. Instead of appealing, Milestone brought a § 1983 suit against Monroe, alleging violations of her due process and free speech rights. Magistrate Judge Crocker (W.D. Wis.) granted summary judgment to the defendants on the ground that neither the Director nor the Board were final policymakers for Monell purposes. Milestone appeals.

In their opinion, Seventh Circuit Judges Manion, Sykes, and Hamilton affirmed. The Court agreed with the magistrate, at least as far as he went. In order to establish liability against the city, there must be (in this case) a decision by a municipal agent with final policymaking authority. It is clear that neither the Director nor the Board had that authority. The Director's decisions are all subject to review by the Board. Under state and local law, the Board did not have final policymaking authority. The Monroe Common Council retained ultimate authority over the Board's activity in this area. Although the city cannot be liable for the actions of the Director or the Board under Monell, Milestone also brought a claim based on the Code of Conduct itself. The code is municipal policy and can subject the city to liability if it, as Milestone alleged, violates the First Amendment. Because the Code is content neutral, it's restrictions are acceptable if they are: a) narrowly tailored, b) to achieve a significant governmental interest, and c) allow for ample alternative communication channels. The Court concluded that the Code met each of these requirements. First, the rules only require visitors to treat each other with respect and to refrain from abusive language. Second, the Center's goal was to create a pleasant and upbeat environment for its older citizens. Third, the Code does not restrict a visitor's right to express herself, as long as she does so respectfully. The Code is a content-neutral reasonable time, place, and manner restriction and does not violate the First Amendment. Finally, the Court rejected Milestone's void for vagueness claim. Any person of reasonable intelligence would understand what conduct is prohibited.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MCCAULEY v. CITY OF CHICAGO (October 20, 2011)

Glenford Martinez was released from prison in 2006, after serving 13 years for attempted murder. The following year, he was arrested for domestic battery after he allegedly choked his former girlfriend, Mersaides McCauley. Martinez could have been held without bail had the Illinois Department of Corrections issued a parole violation warrant. They did not -- and he was released on bail. McCauley obtained an order of protection, but to no avail. Martinez continued to violate the order. In early 2008, Martinez shot and killed McCauley and then killed himself. McCauley's estate brought a number of federal and state claims against numerous defendants, including an equal protection claim against the City of Chicago and Roger Walker, the then-IDOC Director. Judge St. Eve (N.D. Ill.) dismissed the federal claims and declined to exercise jurisdiction over the state claims. With respect to the equal protection claims, she concluded that female victims of domestic violence are not a protected class and that Eleventh Amendment sovereign immunity precluded any recovery against Walker in his official capacity. The court denied the estate's request to conduct discovery to support a personal capacity claim against Walker. The estate appeals.

In their opinion, Seventh Circuit Judges Manion, Sykes, and Hamilton (dissenting in part) affirmed. The Court criticized the district court's analysis but ended up with the same result. The Court approached the case by asking whether the complaint sufficiently pleaded facts that would allow an inference that the City maintained a "policy, custom, or practice" of discrimination against a group to which McCauley belonged. Twombly and Iqbal require specific facts that support the legal claims, rather than legal conclusions and conclusory allegations. After disregarding the complaint's legal conclusions, the Court found that the factual allegations did not satisfy the Monell standard. In fact, the factual allegations alleged that the City failed to provide special protection to female victims of domestic violence, not that it failed to provide equal protection. The equal protection claim against the City was properly dismissed. The Court also affirmed the denial of discovery related to the Walker personal capacity claim, although again for different reasons. Given that there is nothing in the record to suggest that Walker had any personal involvement in Martinez' parole, the district court's refusal to allow discovery on the issue was not an abuse of discretion.

Judge Hamilton dissented from the majority's dismissal of the equal protection claim against the court City. His dissent was primarily an attack on Iqbal, its heightened pleading requirements, its inconsistency with other rules and practice, and its difficulty in application. He believed that the estate's complaint adequately alleged an equal protection claim by alleging that the City treated domestic violence less seriously than other crimes and that it had a custom of doing so. Even if he concluded that the complaint fell short, however, he would have remanded to give the estate an opportunity to amend its pleading to meet the heightened standard.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PALKA v. CITY OF CHICAGO (October 18, 2011)

In early 2007, Assistant Deputy Superintendent Matthew Tobias recommended that Peter Palka be terminated from his position as a Chicago probationary police officer. Matthew's father, Tadeusz, himself a Cook County Deputy Sheriff, complained to Tobias and sought Peter’s reinstatement. Tobias refused. A few months later, an unidentified person placed a suspicious call to the school attended by Tobias' children. Tadeusz was accused of making the call. After an investigation concluded that he was responsible, he took early retirement. He later brought suit against the County and others alleging violations of his constitutional rights. The district court dismissed his complaint and the Seventh Circuit affirmed (opinion and intheiropinion). At about the same time, Peter filed a § 1983 suit against the City and Tobias, alleging discrimination based on his Polish ancestry. He sought reinstatement and back pay. The district court granted summary judgment to the City on the ground that Tobias was not a policymaker under a Monell analysis. Magistrate Judge Nolan (N.D. Ill.) then ruled that Peter was not entitled to reinstatement on the grounds that Tobias, the only defendant, lacked any authority to grant reinstatement. Peter moved for voluntary dismissal. The magistrate judge dismissed the City claims with prejudice and the Tobias claim without prejudice. Peter appealed. In the meantime, Tadeusz and Peter both received EEOC right to sue letters and filed yet a third case based on Title VII against the City (by Peter) and the Sheriff’s Department (by Tadeusz). Judge Kendall (N.D. Ill.) dismissed the claims on res judicata grounds. The Palkas appeal. The appeals were consolidated.

In their opinion, Seventh Circuit Judges Ripple, Kanne, and Sykes affirmed. The Court addressed Peter's appeal first. Normally, a dismissal without prejudice is not considered final and appealable. Here, however, the statute of limitations on Peter's § 1983 claim has expired. Since the case cannot be refiled, the judgment below is considered final. With respect to the judgment in favor of the City, the Court found no Monell liability and affirmed. It concluded that the two allegations of discrimination could not amount to a widespread pattern or practice and that Tobias was not a final policymaker, since his decisions were subject to review. Turning to the availability of a reinstatement remedy, the Court refused to consider Peter's argument. Since Peter requested and received dismissal of his claim against Tobias, he cannot complain about the earlier interlocutory order barring the reinstatement remedy. The Court next considered the Title VII claims dismissal. It found that the case was a "quintessential example of claim splitting." The cases involve the same parties and the same cause of action (albeit under different theories) and were litigated through final judgment. The Court rejected the Palkas' arguments to the contrary.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MINN-CHEM, INC. v. AGRIUM INC. (September 23, 2011)

The plaintiff and other direct and indirect United States potash purchasers brought a class action against potash producers. The defendants' mining operations are located in Canada, Russia, and Belarus. The defendants responded that: a) the court lacked jurisdiction under the Foreign Trade Antitrust Improvements Act, or, alternatively, b) that the complaint failed to state a claim. Judge Castillo (N.D. Ill.) denied defendants' motion but certified the order for immediate review.

In their opinion, Seventh Circuit Judges Manion, Evans (who, as a result of his death, took no part in the decision), and Sykes vacated and remanded with instructions to dismiss the complaint. The Court addressed only one of the defendants' arguments – that the FTAIA requires dismissal of the complaint. Under the FTAIA, the Sherman Act does not apply to foreign trade or commerce unless the alleged anticompetitive conduct involves U.S. imports or has a "direct, substantial, and reasonably foreseeable effect" on U.S. commerce. The Court noted the tension between its earlier United Phosphorus decision, which held that the FTAIA's requirements were jurisdictional, and the Supreme Court’s decisions in Arbaugh and Morrison, which held that similar requirements in other statutes were not jurisdictional. The Court concluded that it need not address that tension, since dismissal was required in either case. The Court cautioned that the two FTAIA exceptions -- involved U.S. import commerce or had a direct effect on U.S. commerce -- must be treated separately and distinctly. The district court erred when it concluded that the complaint was sufficient because it alleged both that the defendants were potash importers and that they conspired to fix potash prices outside the U.S. The relevant inquiry under the import exception is whether the defendants' alleged illegal behavior was directed at the import market. The complaint contains no such allegations. It contains only allegations of anticompetitive conduct directed at non-U.S. markets. With respect to the direct effect exception, the effect must be an immediate consequence of defendants’ behavior. The Court concluded that the complaint said very little about the relationship between defendants' conduct and the U.S. potash market. The allegations it does contain are too indirect to support a direct effects exception.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CLARETT v. ROBERTS (September 23, 2011)

On in early October morning in 2005, police officers from Lynwood and Lansing arrived at the home of Patricia Clarett. The officers suspected that Clarett and her sons were involved in a burglary. Although Clarett and the officers had very different recollections of what happened after they arrived at her home, they do agree that Lansing police officer Steven Roberts used his Taser on Clarett three times. Clarett brought an action against a number of police officers, alleging excessive force and false arrest, as well as state law, claims. After a jury found for the defendants, Judge Grady (N.D. Ill.) denied Clarett's post-trial motions. Claret appeals.

In their opinion, Seventh Circuit Judges Manion, Rovner, and Sykes affirmed. The Court first addressed the evidentiary challenges. Clarett challenged the district court's ruling in limine that two criminal convictions, misdemeanor retail theft and obstruction of a police officer, were admissible. The Court concluded that neither conviction was admissible under Rule 609, in that neither had an element of dishonesty. Furthermore, under Rule 608 (b), defendants could not prove the convictions with extrinsic evidence or make affirmative use of them. However, probably in response to the pretrial ruling, Clarett's own counsel introduced the convictions during her case-in-chief. In Ohler, the Supreme Court held that a criminal defendant waived his right to challenge the admission of convictions if he introduced evidence of it first. The Court noted that it had never applied Ohler in a civil context, although other circuits had. It concluded that the principle should apply in civil cases. Clarett cannot challenge the admission of the convictions. Next, Clarett challenged Officer Roberts' testimony about his use of the Taser as impermissible expert testimony. The Court disagreed. The testimony was not of a technical nature but was limited to Roberts' own experience. Alternatively, since all parties agreed that he used the Taser three times, any error was harmless. Finally, Claret challenged the district court's exclusion of evidence that there was no warrant. The Court concluded that no only was the evidence of no warrant irrelevant to the excessive force or false arrest claims, but also that Clarett in fact testified on two occasions that there was no warrant. The district court did not abuse its discretion. Clarett also challenged the jury instructions. The Court found no merit in her challenges. Finally, Claret challenges the jury's verdict, asserting that three Taser deployments constitutes excessive force. The Court noted the conflicting versions of the events of that morning in October. It concluded that there was sufficient evidence in the record to support the jury's verdict.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

QUALITY OIL, INC. v. KELLEY PARTNERS (September 19, 2011)

Kelley Partners operates a number of quick-lube facilities in Illinois. In 2003, it entered into an agreement with lubricants distributor Quality Oil which provided: a) Quality “loaned” $150,000 to Kelley without cost, b) Kelley agreed to purchase 85% of its motor oil requirement from Quality and agreed to purchase at least 225,000 gallons of oil and 225,000 oil filters over five years, c) the agreement terminated when Kelley either met the purchase requirements or 60 months, whichever came first, d) Kelley agreed to pay a penalty if it terminated the agreement early, and e) Kelley agreed that it could be liable for the termination penalty if it transferred any of its locations without obligating the purchaser to the contract terms. Two years into the agreement, and before it met its purchase requirements, Kelley sold its business without obligating its purchaser to the contract. Kelly refused to pay an early termination penalty. Quality brought a breach of contract claim against Kelley. Magistrate Judge Cox (N.D. Ill.) granted summary judgment to Quality for the termination penalty and prejudgment interest. Kelley appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes affirmed. Kelley's principal argument was that the five-year/225,000 gallon contract termination clause was handwritten, that it should therefore take priority over other contract terms, and that it should be interpreted to relieve Kelley of any obligation after five years, even if it did not meet the purchase requirements. The Court rejected that argument on several grounds. One, handwritten terms are not given priority if they alter the fundamental contractual bargain. Two, a contract must be ready in its entirety. And three, a contract should be interpreted so as not to produce absurd results. Here, although the Court conceded that a literal interpretation of the handwritten term could support Kelley's argument, it made no commercial sense to read it that way, taking the agreement as a whole. Kelley stopped purchasing motor oil from Quality after two years without having met its contractual obligation and then sold its business. It therefore breached the agreement and was liable to Quality for the early termination penalty.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

STANARD v. NYGREN (September 19, 2011)

H. Michael Stanard and his wife built an outdoor amphitheater on property they owned in rural McHenry County, Illinois. For years, they hosted public events there, including a 40th anniversery tribute to Woodstock  in 2009. They brought suit against the Sheriff of McHenry County and 22 of his deputies, as well as the County itself, alleging that Sheriff Nygren forced them to use County deputies for security at these events at inflated rates. The original complaint contained 28 counts, asserting, among others, §§ 1983 and 1985 claims, RICO claims, and state law claims. The complaint made no effort to identify which defendants were guilty of what conduct. The defendants moved to dismiss the complaint pursuant to Rule 12(b)(6). After missing numerous deadlines to respond, the plaintiffs finally responded almost six months late. Judge Kapala (N.D. Ill.) granted the motion. He dismissed several frivolous counts with prejudice and dismissed others without prejudice, giving plaintiffs' attorney an opportunity to be plead more concisely. Again, plaintiffs missed deadlines before filing a motion for leave to file an amended complaint. Very few of the original complaint's deficiencies were corrected. Even some specific concerns addressed by the district court in its original ruling were ignored. The court denied the motion but gave plaintiffs yet another chance. Again, plaintiffs filed an amended complaint without correcting the complaint’s fundamental deficiencies. The district court dismissed the federal claims with prejudice. Plaintiffs appeal.

In their opinion, Seventh Circuit Judges Manion, Rovner, and Sykes affirmed. The Court first noted that plaintiffs' counsel's inability to meet deadlines spilled over into the Seventh Circuit. Notwithstanding three extensions, the brief was filed late and without a proper jurisdictional statement. The Court turned to the merits. It noted that the Rules 8 and 10 pleading requirements are meant to ensure that a complaint puts the defendant on notice of the claims against him. When a complaint is unintelligible and lacks the coherence and organization to put a defendant on notice, dismissal is an appropriate remedy. The Court concluded that the Stanard’s complaint was just that. It cited the numerous sentences in excess of 100 words, the lack of any cohesive core allegation against the defendants, the numerous conclusory allegations, and the grammatical errors, just to name a few. Plaintiffs were given two opportunities, with specific instructions, to correct these deficiencies and failed to do so. Although leave to amend a complaint is normally allowed, the district court did not abuse its discretion in dismissing the complaint under these circumstances. In addition to affirming the dismissal, the Court ordered plaintiffs' counsel to show cause why he should not be disciplined and ordered the clerk to forward a copy of its opinion to the Attorney Registration and Disciplinary Commission of Illinois.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

BURNS v. ORTHOTEK, INC. EMPLOYEES' PENSION PLAN AND TRUST (September 15, 2011)

Dr. Richard Burns conducted his northern Indiana orthodontics practice as Orthotek, Inc. Burns was the Plan administrator, the fiduciary, and the principal participant in the company’s pension plan. In early 2003, Burns signed a Plan document that named his sons as beneficiaries. His wife Cheryl signed a document consenting to that designation. Her signatures are dated the day after those of her husband's, however. When Dr. Burns died in mid-2004, Cheryl Burns filed a benefits claim. She claimed that she did not remember signing the form, that she did not understand the form, and that her signature was not witnessed. The Plan denied her claim. Cheryl Burns brought suit against the Plan pursuant to ERISA. Chief Judge Simon (N.D. Ind.) granted summary judgment to the Plan. Burns appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes affirmed. Under ERISA, a plan participant may designate a beneficiary other than a surviving spouse but only if the spouse consents in writing and the consent is witnessed by a plan representative. The only issue on this appeal is whether Dr. Burns witnessed his wife's signature. The Court rejected the district court's conclusion that the consent was in "substantial compliance" with ERISA. The doctrine of substantial compliance comes into play only when ERISA is silent on a subject. Here, the statute explicitly requires a witnessed consent. But the statute does not necessarily require that the witness be physically present at the time of the spouse’s signature. Furthermore, the Court stated that the statute should not be interpreted to produce absurd results. Here, a) Dr. Burns was the only Plan representative, b) he signed the required forms, c) he must have given the forms to his wife, d) his wife signed the forms, and e) she must have given the forms back to him. Under these admittedly unusual circumstances, the Court concluded that the Plan was within its discretion to find that Dr. Burns witnessed his wife's signature.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LINDQUIST FORD v. MIDDLETON MOTORS (September 13, 2011)

Middleton Motors, a Ford dealership near Madison, Wisconsin, was experiencing financial difficulties in 2002. It began discussing arrangements with Lindquist Ford, an Iowa dealership. Middleton wanted both daily management help and an infusion of cash. Discussions continued into 2003, when the dealerships signed a confidentiality agreement and also agreed not to hold the other liable in the absence of a written agreement. The parties never consummated a written agreement and Lindquist never invested any funds. Nevertheless, Craig Miller, Lindquist's general manager, took over Middleton's management in April of 2003. He remained in that capacity until Middleton terminated the relationship in March of 2004. When Middleton refused to compensate Lindquist, Lindquist brought suit for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment. The district court granted summary judgment to Middleton on the contract and promissory estoppel claims but, after a bench trial, awarded $160,000 to Lindquist on the unjust enrichment and quantum meruit claims. The Seventh Circuit reversed and remanded (opinion here and intheiropinion here) for a new trial. On remand, Judge Crabb (W.D. Wis.) again found for Lindquist and awarded approximately the same amount. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder remanded with instructions to enter judgment for Middleton. The Court noted that both unjust enrichment and quantum meruit under Wisconsin law contain an equitable element. When it remanded the first appeal, it identified as the only remaining issue whether Lindquist's compensation expectation was equitably reasonable, considering the parties' course of conduct. If Lindquist expected to be paid only if Miller was successful and he was not, but was given a chance to be, then Lindquist should not be compensated. The negotiation record between the parties clearly establishes that Lindquist did not expect to be paid unless the Middleton dealership became profitable. Although the district court found that Lindquist did make the dealership profitable, the Court concluded that it erred in doing so. That conclusion is simply unsupported by the evidence. Therefore, Lindquist can only recover if Miller was not given a chance to make the dealership profitable. The district court concluded that he was not. Again, however, the Court concluded that the district court's findings were clearly erroneous and that Middleton did not prevent Miller from making the dealership profitable. Judgment should have been entered for Middleton.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CARROLL v. STRYKER CORP. (September 6, 2011)

Matthew Carroll was a commissioned sales representative for Stryker Corporation, a medical instrument manufacturer. Each year, Stryker sent its commissioned salespeople a compensation plan that sets sales targets and described the compensation structure. Carroll failed to meet his sales quotas in 2006 and 2007. Beginning in 2008, Stryker warned Carroll that he had to meet his sales quota each quarter or face termination. Although he was short of his quota on March 31, 2008, Carroll had a sale in progress that, if closed, would put him over his target. Stryker rejected the purchase order on March 31 because it sought to modify Stryker's normal terms and conditions. The company gave Carroll an extra day to submit a satisfactory purchase order. When he did not, Stryker fired him. Within a month, Stryker had resumed negotiations with Carroll’s potential customer, modified the financing term that it had earlier refused to modify, consummated the deal, and paid a commission to Carroll’s successor. Carroll brought suit in state court under a Wisconsin wage payment statute. He also asserted claims for quantum meruit and unjust enrichment. Stryker removed the case to federal court, asserting that the statutory claim plus attorneys fees met the $75,000 diversity jurisdiction amount in controversy threshold. But Stryker then asserted in its answer that the statutory claim was unavailable to Carroll because it did not apply to commissioned salespeople. When Stryker made the same argument in its motion for summary judgment, Carroll sought to withdraw the statutory claim and add a claim for breach of contract. Magistrate Judge Crocker (W.D. Wis.) granted summary judgment to Stryker, holding that the equitable remedies could not succeed in light of the written compensation contract, and denied the motion for leave to amend, citing delay and lack of good cause. Carroll appeals.

In their opinion, Seventh Circuit Judges Manion, Evans (who, as a result of his death, took no part in the decision), and Sykes affirmed. The Court first addressed the propriety of the removal, given that the statutory damages on which it was based appeared to be unavailable to a commissioned salesperson. The Court noted that it may have concluded that it lacked jurisdiction if the statutory claim was the only claim presented. It noted, however, that Carroll included claims for compensatory damages under the quantum meruit and unjust enrichment counts that satisfied the jurisdictional amount requirements. Turning to the merits, the Court stated that Wisconsin law permits quantum meruit and unjust enrichment claims only in the absence of an express contract. Although the Court conceded that Carroll had no employment contract and could be discharged at will, it also concluded that he did have an express compensation contract. Each year, the company sent out a compensation plan. Although the plan was not signed by the parties, Carroll continued to work and Stryker continued to pay him. That is all that is required for an express contract. The equitable claims were properly dismissed. Finally, the Court had little difficulty in finding no abuse of discretion in the district court's denial of Carroll's request to amend. It was filed seven months after a court-imposed deadline and less than a month before the end of discovery. Particularly given that Carroll was aware of the statutory problem from the very onset of the case, the denial was quite reasonable.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DURAN v. TOWN OF CICERO (August 9, 2011)

Alejandro and Maria Duran threw a party at their Cicero, Illinois home to celebrate their daughter’s baptism. Close to 100 people attended. The Cicero police received two telephone complaints from neighbors. Shortly after the Cicero police responded to the second complaint, the party guests and the police exchanged heated words. Once the police actually entered the property, ostensibly to make an arrest, the verbal melee became a physical one. Seventy-eight guests claim they were physically injured and several police officers required medical treatment. The police made seven arrests but there were no convictions. The 78 injured guests brought suit against 17 police officers and the Town of Cicero pursuant to § 1983 and Illinois law. They also asserted a spoliation of evidence claim based on the police's confiscation of two video cameras, one that was returned but that did not contain any footage of the physical confrontation and one that was not returned that did contain footage of the confrontation. Before trial, Cicero stipulated to his liability under § 1983 and to its vicarious liability on the state law claims. The jury returned verdicts in favor of 23 plaintiffs, on which the court entered judgment. The court then tried to spoliation case. It excluded from that case the issue of the returned video camera, rejecting plaintiffs' theory that preventing the creation of evidence amounts to spoliation. Cicero filed a Rule 59 motion to amend the judgments pursuant because they appeared to list separate awards against both the individual defendants and Cicero for the same injuries. Judge Grady (N.D. Ill.) denied the motion. Cicero appeals the denial of the Rule 59 motion. The plaintiffs cross-appeal.

In their opinion, Seventh Circuit Judges Ripple, Manion, and Sykes vacated and remanded in part and affirmed in part. The Court first addressed Cicero's appeal. It noted the fundamental principle that a plaintiff is only entitled to one recovery for his injuries. Here, Cicero had stipulated to its liability and that issue should not have been submitted to the jury. It was -- and they were obviously confused. In addition, instructions and special verdict forms asked damages to be assessed by defendant or by claim and not for a particular injury to a particular plaintiff. A Rule 59(e) motion is a proper way to correct a manifest error of law such as this. The Court concluded that it was reasonably clear what the jury was trying to do and remanded for an amended judgment to eliminate any possibility of double recovery. The plaintiffs raise three issues on appeal: the exclusion of the videotape, the exclusion of misconduct complaints against one defendant, and the exclusion of a civil rights conviction against another defendant. First, the Court agreed with the district court that the evidence regarding the returned video camera was properly excluded. Spoliation occurs only when one fails to preserve existing evidence. Here, plaintiffs argue that the videographer would have continued recording the physical melee, creating valuable evidence for trial. That does not amount to actionable spoliation in Illinois. Second, the Court concluded that the district court did not abuse its discretion in excluding four misconduct complaints accusing one of the defendants of verbally abusing minorities. The Court noted the substantial leeway a district court has in ruling on an issue like this that requires a balancing of the evidence’s probative value with its prejudicial effect. Third, the plaintiffs sought to introduce a criminal conviction on a civil rights charge against another officer. They argued admissibility under either Rule 609(a)(1) or 609(a)(2). The Court concluded that plaintiffs forfeited their (a)(1) argument because they did not renew it at trial after the court's conditional pretrial ruling excluding it. With respect to (a)(2), the Court concluded that, although there was some evidence of an attempted cover-up, the crime with which the officer was charged and convicted did not involve dishonesty.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MATRIX IV, INC. v. AMERICAN NATIONAL BANK AND TRUST CO. OF CHICAGO (July 28, 2011)

Stylemaster and Matrix IV were both in the molded-plastics industry in the 1990s. In 1997, Stylemaster borrowed money from American National Bank and pledged all of its assets and property as security. In 2001, Stylemaster placed a number of larger-than-usual orders with Matrix. Stylemaster became delinquent on its payments. Matrix brought suit for breach of contract in 2002. Shortly thereafter, Stylemaster filed for bankruptcy. Matrix submitted a $7.2 million claim and American National submitted a $9.6 million claim. Stylemaster's owners formed a new company and purchased Stylemaster's assets at a bankruptcy sale. Matrix objected to the sale and also moved to dismiss the bankruptcy petition on the grounds of fraud. The bankruptcy court, after a hearing, approved the sale. Matrix filed further objections and a motion to reconsider, continuing to insert fraud on the part of Stylemaster and its owners. The bankruptcy court found no evidence of fraud or collusion and denied Matrix's motion. American National filed an adversary proceeding seeking a declaration that its lien had priority over Matrix's. Again, Matrix asserted its allegations of fraud in response. After a trial, the bankruptcy judge concluded that American National's lien had priority, again rejecting Matrix’s claims of fraud and collusion. The district court and the Seventh Circuit affirmed. Meanwhile, Matrix filed a separate suit against American National and Gateway, another company formed by Stylemaster's principals. The complaint alleged common law fraud and RICO violations and parroted Matrix's allegations of fraud and collusion made in the bankruptcy court. Judge Norgle (N.D. Ill.) entered judgment on the pleadings in favor of American National and Gateway, concluding that Matrix's claims were barred by both res judicata and collateral estoppel. The district court denied, however, Gateway's request for Rule 11 sanctions. Matrix appeals. Gateway cross-appeals -- and seeks frivolous appeal sanctions.

In their opinion, Seventh Circuit Judges Bauer and Sykes and District Judge Griesbach affirmed. The Court addressed the two concepts at issue. Res judicata (or claim preclusion) requires party identity, cause of action identity, and a final judgment on the merits. Here, the only disagreement is cause of action identity and final judgment. Collateral estoppel (or issue preclusion) is a narrower concept and requires that the issue be the same issue as in the prior litigation, that the issue was actually litigated, that a determination of the issue was essential to the final judgment, and that the party against whom the concept is used was fully represented. The Court first addressed res judicata. It concluded that Matrix's fraud allegations are the same basic allegations it made in the bankruptcy court and that there was a final judgments on the merits. Instead of concluding, however, that res judicata/claim preclusion barred the suit, the Court turned to its 1990 decision in Barnett. Barnett addressed a bankruptcy court's jurisdiction and the difference between "core" and "non-core" proceedings. There, the Court held that a later-filed RICO claim, because it was non-core, was not barred by res judicata even though the claims had been raised in an earlier bankruptcy proceeding. But Barnett is inconsistent with the Court's own pre-and post-Barnett jurisprudence as well as with other circuit’s decisions. Because the matter was not briefed and because a narrower ground existed on which to resolve the case, the Court did not resolve the conflict. Instead, it concluded that the elements of collateral estoppel were clearly present and that Matrix was thus barred from relitigating the issues it raised in the bankruptcy proceedings. The Court also affirmed the district court's denial of sanctions, concluding that Matrix's claims were at least colorable.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

KIMBRELL v. BROWN (July 11, 2011)

Kary Brown collided with a car while he was driving a truck for Koetter Woodworking. Melvin Kimbrell, a passenger in the car, suffered injuries. Kimbrell brought a personal injury action against both Brown and Smith in October of 2008, although he did not serve process until June of 2009. When Brown advised the district court that he had filed a bankruptcy petition in February 2008, the court stayed the proceeding as to him. Koetter moved to dismiss based on Kimbrell's failure to use reasonable diligence in serving process. Judge Gilbert (S.D. Ill.) granted the motion but did not enter judgment. Kimbrell appeals.

In their opinion, Judges Evans, Sykes, and Hamilton dismissed for lack of jurisdiction. The final judgment rule provides that a judgment may not be appealed until the litigation in the district court is over and there is nothing more for the court to do but execute the judgment. On appeal, Kimbrell takes the position that his claim against Brown was void ab initio because it was filed in violation of the bankruptcy stay. The Court noted a debate in other circuits about whether such an action is void or voidable, but felt no need to weigh in. Even if it is void ab initio, the Bankruptcy Code provides avenues for later adjudication. Instead, the Court noted that Kimbrell has taken inconsistent positions regarding his claim against Brown. In fact, the Court discovered that the stay was actually lifted before oral argument and Kimbrell filed a new complaint against Brown. The Court likened the situation to a sort of judicial estoppel, in which a party prevails in one phase of the case on a particular argument and then adopts a contradictory argument in an attempt to prevail in a later phase of the case. Here, Kimbrell has never prevailed, but his gamesmanship in appealing the dismissal of Koetter while still pursuing Brown is unacceptable. The case remains open and unfinished. The final judgment rule does not allow the Court to consider the merits. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

UNIVERSAL MORTGAGE CORP. v. WURTTEMBERGISCHE VERSIGHERUNG AG (July 11, 2011)

Ray Hightower worked for Universal Mortgage Corp., a company that originated mortgage loans and sold them to investors. When Universal sold the loans, it warranted that the loans complied with the Federal National Mortgage Corporation standards. For over a year, Hightower took kickbacks from an outside broker in return for ensuring that Universal approved non-compliant loans. Universal sold the loans without knowledge of their non-compliant status. Some of the loans went into default. When those investors realized that Universal had breached its compliance warranty, they exercised their rights to force Universal to repurchase the loans. Universal estimates that its exposure will be $4.5 million. Universal filed a claim under its bankers blanket bond issued by a consortium of Lloyds of London underwriters. The bond indemnified Universal for "[d]irect financial loss" it suffered "by reason of and directly caused by . . . dishonest acts by any Employee." The bond also excluded any loss "resulting from" a loan repurchase from an investor. The underwriters denied the claim. Universal brought suit for breach of contract and bad faith denial of an insurance claim. Judge Stadtmueller (E.D. Wis.) granted a motion to dismiss, concluding that Hightower's fraud did not "directly cause" the loss and that the repurchase exclusion applied. Universal appeals.

In their opinion, Judges Posner, Flaum, and Sykes affirmed. The Court noted that the bond form has been around for decades and that many of its terms have well-established meanings. But two camps have emerged on the proper meaning of "directly cause." One camp has adopted the proximate cause principle from tort law. But this case is governed by Wisconsin law, and Wisconsin has adopted a "direct means direct" definition of "directly cause." Here, Universal's liability is to a third party. Even if its loss from that liability is due to employee misconduct, the employee misconduct did not "directly cause" the loss. The Court rejected Universal’s argument that its loss arose when it initially approved the non-compliant loans. Even if it did, it recovered that loss when it sold the loans to investors. The loss it now seeks to recover is the loss from its obligation to those investors. Alternatively, the Court agreed with the district court that the repurchase exclusion applied and barred coverage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 EZELL v. CITY OF CHICAGO (July 6, 2011)

A few days after the Supreme Court found Chicago's handgun ban unconstitutional in McDonald, the Chicago City Council passed the Responsible Gun Owners Ordinance. Among other things, the ordinance required one hour of range training for gun ownership but prohibited firing ranges in the city. Several Chicago residents and three interested organizations brought suit, alleging that the range ban violates the Second Amendment. They sought a temporary restraining order, a preliminary injunction, and a permanent injunction. Judge Kendall (N.D. Ill.) denied the TRO and held a hearing on the preliminary injunction. After hearing testimony, the court denied injunctive relief on the grounds that plaintiffs were not irreparably harmed and were not likely to succeed on the merits. The court also found the balance of harm to favor the City of Chicago. Plaintiffs appeal.

In their opinion, Judges Kanne, Rovner (concurring in the judgment), and Sykes reversed and remanded with instructions to enter the preliminary injunction. The Court first addressed irreparable injury and adequate remedy at law. It took issue with the district court's focus on the incidental travel burdens that the ordinance imposed. First, constitutional harm cannot be measured by considering whether the right can be exercised in another jurisdiction. Second, the challenge here is a facial challenge, where harm is not measured by reference to particular persons. Third, the Court compared Second Amendment interests to First Amendment interests, where irreparable harm is sometimes presumed. The Court turned to likelihood of success on the merits. Relying principally on Heller and McDonald, the Court described a framework for resolving Second Amendment litigation. The first question, which requires an historical inquiry, is whether the activity in question is even protected by the Second Amendment. For example, Heller pointed out that some restrictions might survive a challenge because the right at issue was not understood to be a public right at the time the Second (or Fourteenth) Amendment was ratified. The second inquiry is into the justification for the restriction -- the regulatory means and the public benefits end. The nature of the standard of review depends on how close the right is to the core of the Amendment and the severity of the burden imposed. The Court then applied the framework to Chicago's ordinance and first concluded that range training is not outside the protection of the Second Amendment. The "central component" of the Amendment -- the right to keep and bear arms -- would mean little without the right to train and practice. The court distinguished the eighteenth and nineteenth century statutes and regulations cited by Chicago as being merely regulatory or time, place, and manner restrictions. The Court proceeded to the second inquiry and used First Amendment jurisprudence to decide which form of heightened scrutiny was appropriate. It stated that a severe burden on a core right requires strong public interest justification and a close fit between means and the end. More modest burdens on less court rights need less justification. Here, the ordinance is a total ban on a right close to the core of the Second Amendment. The City must satisfy something more rigorous than intermediate scrutiny. The Court found that Chicago had failed to come close. All of its evidence with speculative or conclusory or could be countered with much less burdensome regulatory efforts. The Court concluded that the plaintiffs had a strong likelihood of success on the merits. For much the same reason, the Court concluded that the balance of harms favored the plaintiffs. It ordered that an appropriate injunction be entered on remand.

Judge Rovner wrote separately, concurring in the judgment. She pointed out that the right at issue was not all firearms training but was limited to live training at a firing range. Other types of training, including simulated training, are not at issue and may be enough to make the core right meaningful. She therefore did not agree that the right was as close to the core as the rest of the panel and that, as result, required more than intermediate scrutiny. She also found support in the eighteenth and nineteenth century regulations distinguished by the majority.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ABM SECURITY SERVICES v. DAVIS (June 16, 2011)

ABM Security Services’ employees filed a class action against the company in Illinois state court. The complaint alleged that ABM violated the Illinois Minimum Wage Law by not compensating its employees for time worked before and after their shifts. ABM filed a notice of removal in which it calculated the amount in controversy to be in excess of $10 million. It reached that amount by multiplying minutes per day of alleged unpaid time by number of employees by average wage. It then added the 2% statutory penalty. It also noted that that number could increase by $1.5 million if overtime calculations were used. Judge Shadur N.D. Ill.) asked ABM to recalculate the number, excluding employees who opted into a California class-action. ABM filed an amended notice with calculations of approximately $5.2 million (straight time) and $7.8 million (overtime). The court asked for still additional information and instructed ABM to exclude vacation and sick days. ABM's new number was approximately $5.2 million. The court again disagreed, particularly with the penalty calculation. It did its own calculation and came up with a number approximately $5,000 short of the $5 million amount in controversy requirement. Additionally, the court concluded that class counsel could not have done $5,000 worth of legal work to make up that deficit. He remanded the case to state court. ABM petitions for permission to appeal.

In their opinion, Judges Bauer, Kanne, and Sykes granted the petition, reversed, and remanded. The Court stated the standard -- once the removing party offers a plausible explanation for reaching the $5 million threshold, the case should remain in federal court unless that recovery amount is legally impossible. Here, the Court found that ABM's calculations were reasonable and also found its interpretation of the statutory penalty reasonable. The district court did not establish that the recovery was legally impossible. It should not have remanded. Alternatively, the Court also criticized the district court's conclusion that attorneys’ fees incurred by plaintiffs up to the time of removal could not bridge the $5,000 gap.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GENERAL INSURANCE COMPANY OF AMERICA v. CLARK MALL CORP. (May 4, 2011)

Discount Mega Mall in Chicago was damaged in a major fire in the fall of 2007. It filed a claim with its commercial general liability carrier, General Insurance. It also tendered to General the defense of claims brought by its tenants. General filed a declaratory judgment action against Clark Mall Corporation d/b/a Discount Mega Mall Corporation as well as its principals and tenants seeking an order that it had no duty to defend or indemnify. The defendants asserted five counterclaims for: a) an order that defense and indemnity was required, b) damages for breach of contract, c) damages for a vexatious refusal to defend, d) damages for a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and e) damages for fraud. The defendants moved for judgment on the pleadings with respect to the duty to defend. Magistrate Judge Cole (N.D. Ill.) ruled that General failed to produce evidence establishing the exclusion on which they based their denial of coverage and concluded that it had a duty to defend. Although the magistrate judge originally concluded that the refusal to defend was not vexatious, he later explained that he had not rejected the argument conclusively. At General's request, the magistrate judge entered his ruling as a final judgment under Rule 54(b). General appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes dismissed for want of appellate jurisdiction. The Court made a few comments on the merits presented by the appeal but moved quickly to consider appellate jurisdiction. Rule 54(b) requires that an order be final and that there is no just reason to delay an appeal. In order for in order to be final, it must be the final disposition of a claim in the case. A court must compare the issue resolved in the claim on appeal with those that remain. That comparison here shows that the judgment was not final. The vexatious refusal to defend claim still pends. The common law fraud claim still pending includes allegations relating to General's refusal to defend. Since several of the counterclaims still pending are intertwined with the judgment on the duty to defend, the judgment was not final and the Court has no appellate jurisdiction.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

IN RE: MOTOROLA SECURITIES LITIGATION (May 4, 2011) 

Motorola created the Motorola 401(k) Profit-Sharing Plan for the benefit of its current and former employees. It is a defined contribution retirement plan. The Plan Administrator is the Profit-Sharing Committee, a committee appointed by the Motorola's Board of Directors. Plan participants decide how much to invest and where to invest among available funds. One of the available funds is a Motorola Stock Fund. Participants who invest in the stock fund do not acquired title to Motorola stock, but rather own a pro-rata share in the Fund. The Fund's assets are almost entirely Motorola stock. A number of plaintiffs initiated a class-action securities fraud case against Motorola in 2003 relating to its relationship with a Turkish wireless provider. The class was defined as including all persons "who purchased publicly traded Motorola, Inc. common stock" and specifically excluded any Motorola "affiliate." The parties settled the litigation for $190 million. The Plan submitted a claim for a share of the settlement. Judge Pallmeyer (N.D. Ill.) denied the claim on two grounds: first, Plan participants were not purchasers of "publicly traded" stock and second, the Plan was a Motorola "affiliate." The Plan intervened and appeals.

In their opinion, Circuit Judges Evans and Sykes and District Judge Simon affirmed. The Court disagreed with the district court on its "publicly traded" rationale. The district court found that the Plan was not a class member because plan participants did not purchase publicly traded stock. But it is the Plan that is the claimant here, and the Plan regularly purchased publicly traded Motorola stock. The Court agreed with the district court, however, on the "affiliate" issue, although not for the identical reason. The district court concluded that the Plan was an affiliate applying an ordinary usage definition of affiliate and concluding that the Plan and Motorola were closely associated. The Court chose to apply a securities law definition of affiliate. Under that definition, an affiliate is one who controls, is controlled by, or is under common control with another. Control is defined as the power to manage or direct. Motorola controlled the Profit-Sharing Committee and the Committee had general operational control of the Plan. The Court concluded that the Plan was excluded from the class as an affiliate under the class definition.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FAULKENBERG v. CB TAX FRANCHISE SYSTEMS (March 29, 2011)

In late 2007, Jon Faulkenberg and Byron LeMaster inquired about owning a CB Tax franchise. The company, headquartered in Texas, sent them an offering circular that summarized the franchise agreement. In particular, the circular disclosed that the agreement required all disputes to be arbitrated in Texas and required all litigation to be brought in Texas. The parties ultimately entered into a franchise agreement, although there is some dispute about how and where the parties executed the agreement. Faulkenberg and LeMaster eventually opened five franchises. Four of them were located in Missouri and one in Illinois. CB tax asserts that the agreement was intended to cover only Missouri franchises. Within a matter of months, Faulkenberg and LeMaster closed all the franchises and filed suit against CB Tax in Illinois state court. They alleged violations of the Illinois Franchise Disclosure Act as well as common law fraud. CB Tax removed the case to federal court and moved to dismiss, citing both the arbitration clause and the forum selection clause. Judge Stiehl (S.D. Ill.) dismissed the complaint on the forum selection clause grounds. Faulkenberg and LeMaster appeal.

In their opinion, Circuit Judges Evans and Sykes and District Judge Der-Yeghiayan affirmed. The Court noted that the Illinois Franchise Act nullifies forum selection clauses in franchise agreements. The district court was not clear in its rationale for not applying the Act. The Court presumed that the court rejected plaintiffs' argument that the franchise was located in Illinois. But that was error. The court was obliged to accept plaintiffs' version of the facts and plaintiffs alleged that one of the franchises was located in Illinois. They also submitted evidence in support of the allegation in the form of two e-mails and a reference on CB Tax's website. Although the Court concluded that the lower court was wrong to dismiss pursuant to the forum selection clause, it nevertheless concluded that there was an alternative ground for dismissal -- the arbitration clause. Before addressing the substance of the argument, the Court disposed of several preliminary matters. First, the Illinois Franchise Act specifically permits parties to agree to arbitrate outside of Illinois. Second, CB Tax did not waive its right to arbitration when it filed its motion to dismiss. Third, a Rule 12(b)(3) motion is the proper vehicle, rather than a motion to compel arbitration, when the arbitration locale is outside the district. So, if the parties agreed to arbitrate in Texas, the case was properly dismissed for improper venue. The court concluded that the evidence strongly supported an agreement to arbitrate. The circular discussed the arbitration clause. The franchise agreements contained the arbitration clause in plain terms. Faulkenberg and LeMaster received the circular and signed the franchise agreement. They also signed an acknowledgment stating that they had read and understood the agreement. The Court rejected their arguments that they failed to read or understand the franchise agreement and that they did not know they were signing a franchise agreement.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

RUBIN v. THE ISLAMIC REPUBLIC OF IRAN (March 29, 2011)

A number of American citizens suffered physical and emotional injuries in a September 4, 1997 suicide bombing in Jerusalem. Several of them brought suit and obtained a $71.5 million default judgment against Iran, based on the country's training and support of Hamas. In an effort to collect on its judgment, the plaintiffs registered the judgment in Illinois and served Citations to Discover Assets on the Oriental Institute and the Field Museum. The Oriental Institute holds two collections of Persian antiquities on loan from Iran for academic study. The Field Museum holds a collection of Persian pottery and metalworks although the Field Museum claims ownership of these works and Iran does not dispute the claim, the plaintiffs assert that Iran does own the collection because they were stolen and smuggled out of the country decades ago. The museums asserted that the collections were immune from attachment under § 1609 of the Foreign Sovereign Immunities Act. Judge Manning (N.D. Ill.) ruled that only a foreign state can raise § 1609 immunity. Soon thereafter, Iran appeared and asserted its immunity. But Iran's appearance changed the litigation’s direction. The plaintiffs served Iran with discovery requests and deposition notices that sought information not only regarding the Chicago collections but also with respect to Iran's assets in the United States generally. Iran sought a protective order and moved for summary judgment on the immunity issue. The court granted the plaintiffs additional discovery before having to respond to the motion and ordered Iran to respond to general asset discovery. Iran appeals the general asset discovery order as well as the earlier order requiring it to appear and assert its immunity.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Simon reversed and remanded. The Court first addressed its appellate jurisdiction, given the general rule that a order authorizing discovery is not immediately appealable. Orders denying immunity are appealable under the collateral order doctrine, and the district courts decision ordering discovery, in effect, did just that. The earlier order appealed presented a slightly different question. That order denying immunity was immediately appealable under the collateral order doctrine. But the museums did not appeal and that time has run. The effect of the museums' failure to immediately appeal is that the order is appealable the next time an appealable order is entered. Although the Court noted that, in most cases, the next appealable order is the final judgment, it is not necessarily so. Here, there is a second appealable order so the first order is properly under review. The Court turned to the merits and the interpretation of the Foreign Sovereign Immunity Act. The Act generally codified the common law of sovereign immunity. It contains two principal sections: § 1604 makes a foreign state immune from the jurisdiction of United States courts and § 1609 makes a foreign state's property in the country immune from attachment. Each section has exceptions. For example, jurisdiction in this case was premised on a § 1605 exception for cases involving money damage claims resulting from torture or killing. Similarly, the plaintiffs rely on a § 1610 exception to attachment immunity when the foreign state's property in the country is used for commercial activity. But the district court never ruled on the exception’s merits. Instead, it ruled that Iran had to appear and affirmatively plead the exception and then, once it did appear, the court focused on discovery issues rather than the merits. The Court concluded that the district court failed to appreciate the tension between ordering discovery and the sovereign’s right to immunity. Immunity generally protects its beneficiary not only from liability but also from the burdens of litigation, like discovery. Iran is presumed immune from attachment – the plaintiffs must identify particular property and demonstrate that it fits one of the exceptions. The Court noted that the Second, Fifth, and Ninth Circuits agree that discovery should be allowed to proceed narrowly in these circumstances. Therefore, a plaintiff must identify specific property and set forth a plausible argument for an exception to immunity before a court orders discovery. With respect to the district court’s order that Iran had to appear, the Court also reversed. The Act provides that a sovereign’s assets in the country “shall be” immune from execution. Relying on that statutory language, the rest of the Act, the common law immunity history, and decisions from the Fifth and Ninth Circuits , the Court held that a foreign state need not appear to assert that its property is immune from attachment. The argument can be raised by the holders of the property or by the court itself.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On April 13, 2011, the Court granted petitions for rehearing en banc with respect to the Tax Injunction Act issue. On July 8, the en banc Court, in a 5-3 vote, disagreed with the panel and affirmed the district court’s conclusion that the Tax Injunction Act applied.

EMPRESS CASINO JOLIET CORP. v. BLAGOJEVICH (March 2, 2011)

In 2006, Illinois Governor Rod Blagojevich signed into law the 2006 Horse Racing Act. The Act required the state's four highest grossing casinos to pay 3% of their adjusted gross revenue into a fund. The fund was kept separate from other state funds and was not available to any state agency or program. Instead, the money in the fund was paid to five horseracing tracks in Illinois. The purpose of the Act, according to legislative findings, was to assist the horseracing industry, which had suffered financially after casinos were allowed to operate in Illinois. The casinos challenged the Act in state court. The Illinois Supreme Court upheld the Act against state and federal constitutional challenges. A few months later, the United States brought political corruption charges against Blagojevich. In an affidavit attached to the criminal complaint, an FBI agent described conversations in which Blagojevich discussed receiving money in return for his support of the Horse Racing Act. The casinos returned to state court and sought post-judgment relief based on this information. The state court denied relief, concluding that the legislature's motive in passing the Act was irrelevant to its constitutionality. The casinos then brought suit in federal court against Blagojevich, the racetracks, and the owner of two of the racetracks. The complaint alleged a RICO conspiracy and sought a constructive trust to prevent the racetracks from receiving any money. Blagojevich moved to dismiss on legislative immunity grounds. One or more of the defendants also moved to dismiss the RICO claim on res judicata and for failure to state a claim and moved to dismiss the constructive trust claim on several grounds: that it was barred by the Tax Injunction Act, that it was premature, that there was no unjust enrichment, res judicata, and Colorado River abstention. Judge Kennelly (N.D. Ill.) rejected the legislative immunity claim and denied the motions to dismiss the RICO claim, but dismissed the constructive trust claim on the grounds that the Tax Injunction Act eliminated jurisdiction. Blagojevich appealed the legislative immunity ruling and the casinos appealed the constructive trust ruling.

In their opinion, Judges Bauer, Posner (dissenting), and Sykes reversed both with respect to the legislative immunity claim and the constructive trust claim. With respect to legislative immunity, the Court cited Tenney for the proposition that state officials are absolutely immune from damages suits arising from their legislative activity. Although the Supreme Court has never applying that principle to a governor, the Court saw no reason that it would not apply and noted that other circuits have so extended the principle. The principle applies even when the legislative activity is illegal or improper. The Court rejected the casinos’ argument that Blagojevich’s immunity should be decided in reference to state law, relying on the Supreme Court's decision in Lake Country Estates. The Court also expressed its view that the Illinois Supreme Court's decision in Jorgensen (where it rejected Blagojevich’s claim of legislative immunity) would not control even if state law did apply. Jorgensen was not a damages case, but was a constitutional attack on Blagojevich's judicial pay raise veto. Therefore, Blagojevich is immune and the RICO claim should be dismissed. The Court moved on to consider the Tax Injunction Act argument. That Act prohibits a federal court from interfering with the collection of state taxes where there is a sufficient remedy in state court. The only real issue presented under the Act is whether the 3% casino surcharge is a tax. The Court concluded that it was not because it had none of the normal indicia of a tax. The Act never referred to as a tax, the only targets of the Act are four casinos, the only beneficiaries of the Act are five racetracks, the money is segregated from all state funds, the money is not available to any state program or agency, the Act has a regulatory purpose (protecting the racetracks from competition), and the Act was enacted under the state's police power, not its taxing power. Therefore, the Tax Injunction Act does not apply and the constructive trust claim can be considered. Given the Court's treatment of the Tax Injunction Act issue, it proceeded to consider the defendants’ alternate grounds to dismiss the constructive trust claim. First, it rejected the argument that the Illinois Supreme Court's decision on the casinos’ constitutional challenge had any preclusive effect on the case. Both the causes of action and the parties were different. Next, it rejected the argument that the state court’s denial of post-judgment relief had preclusive effect on the case. In fact, the state court denied relief because the allegations of corruption were unrelated to the constitutional challenge before the court. The Court rejected the collateral estoppel and Colorado River abstention arguments for much the same reason -- a constitutionality challenge is fundamentally different from a RICO claim. Finally, the Court rejected defendants' argument that their actions were not the proximate cause of the casinos' injuries.

Judge Posner dissented both with respect to the legislative immunity issue and the Tax injunction Act issue. With respect to immunity, he agreed that the general rule is that a state official is entitled to legislative immunity. But if Illinois grants its officials less than complete immunity, federal common law should do the same. There is no federal interest served in affording a state official more protection in federal court that he would enjoy in a state court. Because it was not clear in Jorgensen whether the Illinois Supreme Court would grant legislative immunity in a civil damages case, judge Posner would certify the question to that court. With respect to the Tax Injunction Act issue, Judge Posner agreed that the only question was whether the surcharge was a tax -- and he concluded that it was. He agreed that not every state receipt of money was a tax, but he distinguished between taxes and fees by asking whether the charge was based on a reasonable estimate of the cost of some service provided. The charge imposed on the casinos here is not a fee for a service but a subsidy for the racetracks. Therefore, it is a tax and the Tax Injunction Act applies.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

KELLEY v. CHICAGO PARK DISTRICT (February 15, 2011)

In 1984, the Chicago Park District gave Chapman Kelley a permit to install a large wildflower display in Chicago’s Grant Park. Kelley was a nationally known painter at the time, known principally for landscapes and floral scenes. He had already, on two occasions, transferred his creativity from the canvas to the ground. The Chicago project covered 1.5 acres and consisted of 48-60 different species of wildflowers. The flowers were placed such that they bloomed at different times, changed colors throughout the season, and increased in brightness toward the center of the project. The project was a huge success. Kelley (and volunteers) continued to maintain the project until 2004, when the Park District reduced the project to less than half of its original size and made other changes. Kelley brought suit against the Park District under the Visual Artists Rights Act of 1990 ("VARA"). He also brought a breach of contract action based on a Park Commissioner's oral promise that the project could continue. After a bench trial, Judge Coar (N.D. Ill.) entered judgment for the Park District on the VARA claim. He concluded that the project qualified as a work of visual art but was insufficiently original under copyright law to merit the protection of VARA. Alternately, he concluded that VARA did not apply because the project was site-specific art. The court entered judgment for Kelley on the contract claim, but awarded damages of only one dollar. Kelley appeals. The Park District cross-appeals.

In their opinion, Judges Manion, Sykes, and Tinder affirmed in part and reversed and remanded in part. The court explained some of the background and history of VARA, dating back to 19th-century France, the European notion of artists' moral rights, the 1886 Berne Convention, and the 1988 Senate ratification of the treaty. After the treaty's ratification, Congress amended the copyright act with VARA. It provided artists with a limited set of moral rights, including the right to prevent modification of one's work. In order to be protected by VARA, however, a work must be “a painting, drawing, print or sculpture.” In addition, the statute explicitly excludes any work not subject to copyright protection. The statute also excludes from protection the modification of a work which is a “public presentation.” The Court discussed at some length but did not decide the public presentation issue (because it decided the case on other grounds) and the painting or sculpture issue (because the Park District did not challenge the district court's conclusion). Instead, it resolved the statutory issue on copyright grounds. In order to qualify for copyright protection, a work must have a human author and must possess fixation (that is, be reduced to tangible form). The Court found both of these elements missing in the wildflower project. It concluded that a wildflower garden is not authored – it is cultivated. It is also not stable enough to be fixed. In fact, its very essence is one of change and growth. Since the work is not subject to copyright protection, is not entitled to protection under VARA. They Court also briefly addressed the contract claim. Relying on the Chicago Park District Act and the Illinois Park District Code, the Court concluded that a single Park District Commissioner had no authority to bind the District. Therefore, the oral "contract" relied upon by Kelly is invalid.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

RIGHI v. SMC CORPORATION (February 14, 2011)

SMC Corporation employed Robert Righi as a sales representative from 2004 until 2006. Righi worked out of his home in Henry, Illinois, where he lived with a roommate and his ailing mother. His principal methods of communicating with his sales manager was his cell phone and e-mail. Righi was attending a training session in Indianapolis on July 11, 2006 when he received a call that his mother was in a coma. He immediately returned home. Although he advised a colleague of his plans and asked the colleague to inform others, he did not inform his sales manager of the situation until the next morning. In fact, he turned his cell phone off and missed several calls from his sales manager on July 11. He sent his sales manager an e-mail on the morning of July 12. He stated that he needed "the next couple days off" to care for his mother, that he had vacation time, or that "I could apply for the family care act, which I do not want to do at this time." Over the next several days, Righi's sales manager attempted to reach him by phone multiple times. Righi did not answer or return the calls. His roommate finally answered one of the calls and took a message that the sales manager needed to speak with Righi as soon as possible. Righi finally called his sales manager -- after nine days of silence. SMC terminated Righi's employment the next day for violating its leave policy. The leave policy required prior approval for a leave and provided that two days absence without notification was grounds for termination. Righi brought suit against SMC pursuant to the Family and Medical Leave Act, alleging that SMC interfered with his statutory rights. Judge McDade (C.D. Ill.) granted summary judgment to SMC on two grounds: that Righi was not entitled to FMLA protection because he stated in his e-mail that he did not want it, and that he was not entitled to FMLA protection because he did not comply with the Act's regulations requiring notification of a return date. Righi appeals.

In their opinion, Judges Flaum, Wood, and Sykes affirmed. In order to be entitled to protection under the FMLA, employee must notify his or her employer of a desire to take leave and of a projected return date. With respect to the former, the Court disagreed with the district court's conclusion. Very little is required of an employee to trigger the FMLA protection. Putting an employer on notice of a basis for leave is sufficient. An employee can waive FMLA protection, but only by a clear expression of intent to do so. The Court concluded that Righi met the notice requirements with his July 12 e-mail. It mentioned the “family care act” and left open, at least, the possibility that he could choose to use it. The Court also concluded that his expressed desire not to use it was not a clear expression of a waiver. The Court agreed with the district court, however, with respect to its alternate grounds for summary judgment. Righi was obligated under the FMLA and its regulations to keep SMC informed of his anticipated return date. The regulations require him to provide that information within two working days. Here, Righi never provided that notice and, in fact, ignored all of SMC's attempts to obtain additional information. He is not entitled to the FMLA's protection.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

KARTMAN v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY (February 14, 2011)

In early 2006, a severe hailstorm hit the Indianapolis, Indiana area, causing extensive property damage. Almost 50,000 area residents filed insurance claims under homeowners insurance policies with State Farm Fire and Casualty Company. State Farm adjusted and paid over $263 million on hose claims. The following year, however, several State Farm policyholders filed suit for breach of contract, bad faith denial of benefits, and unjust enrichment. The suit was brought as a class action and alleged that State Farm underpaid claims and failed to use a uniform standard for evaluating the hail damage. The class sought damages and an injunction ordering State Farm to reinspect the roofs under a uniform standard. Judge Lawrence (S.D. Ind.) refused to certify a Rule 23(b)(3) damages class because of the need for individual underpayment determinations. He did certify, however, a Rule 23(b)(2) class to address whether the class was entitled to an injunction requiring the uniform reinspections. State Farm sought interlocutory review of the certification order.

In their opinion, Judges Cudahy, Wood, and Sykes granted the petition of review, reversed, and remanded with instructions to decertify the class. The Court’s problem with the district court's approach was a basic one – what are the claims? An insurance policy is a contract. For its part, the insurer agrees to pay for covered losses. It does not agree to use a particular standard in evaluating any alleged damage. An insurance policy also implicates tort law as a result of the bad faith denial of benefits claim. But again, tort law does not consider the failure to use a uniform standard a breach of a duty of good faith. Neither contract law nor tort law imposed a separate duty on State Farm to use a particular method to evaluate an insured's loss. The district court’s treatment of the uniform standard claim as a separate claim was error. Having clarified the claims, the Court turned to Rule 23. Rule 23(b)(2) requires that class-wide injunctive relief be both appropriate with respect to the class as a whole and final. The Court found both requirements absent here. First, with respect to appropriate, the Court noted that the class could not even satisfy the most basic of equitable relief requirements -- irreparable harm. Whatever their loss, it can be adequately satisfied with damages. The balance of hardships is also inequitable. The cost of compliance would be enormous, with little benefit. The Court also found that the injunction would be an administrative challenge and impractical. Second, the injunction did not meet the Rule 23 finality requirement. The plaintiffs are not seeking uniform roof inspections as their final remedy. Even in their view, the inspections are merely stepping stones to further proceedings on liability. The injunction does not meet the Rule 23(b)(2) requirements -- the class should not have been certified.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GREENBERGER v. GEICO GENERAL INSURANCE CO. (January 10, 2011

The day after Stephen Greenberger got into a car accident, a GEICO insurance adjuster inspected his car and gave him a check for over $3200. Greenberger kept the money but never repaired the car. A few months later, in connection with the possible sale of the car, a mechanic estimated that the damage was closer to $5000. Greenberger eventually donated the car to charity. He brought suit against GEICO for breach of contract, fraud, and violation of the Illinois Consumer Fraud and Deceptive Practices Act. His claim is that GEICO purposely understates the value of necessary repairs in its estimates. Although he filed the action as a class action, the court never ruled on class certification. Judge Manning (N.D. Ill) dismissed the statutory fraud claim and granted summary judgment to GEICO on the contract and common law fraud claims. Greenberger appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Circuit Judges Kanne and Sykes affirmed. First, the Court concluded that the breach of contract claim was foreclosed by the Illinois Supreme Court's decision in Avery. That case stands for the proposition that a physical examination of the insured's automobile is necessary to prevail on a claim that one's insurer breached its promise to restore the automobile to its prior condition. Although Avery dealt with an insurer's practice of not using original equipment manufacturer parts, the principle is the same. The Court rejected Greenberger's attempts to distinguish Avery on the ground that he had an actual higher estimate. It also rejected his theory that GEICO failed to meet industry standards. With respect to the former, a higher estimate cannot establish the fact of a breach, although it may be admissible, supporting evidence. With respect to the latter, the Court noted that GEICO's promise was not to repair according to any industry standard. The Court also noted that Greenberger could not prove damages without the automobile. Second, the Court affirmed the district court's dismissal of the statutory fraud claim. The Act prohibits unfair and deceptive practices but does not apply to every simple contract dispute. Again, Avery controls. It held that a deceptive practice must include more than simply a promise and a breach. Here, Greenberger has only that. Finally, the Court addressed the common law fraud claim. That claim fails for the same reason the statutory fraud claim fails. Greenberger cannot identify a fraudulent act other than the breach. The Court noted that the claim also fails to the extent it alleges fraudulent concealment. Fraudulent concealment requires a fiduciary relationship. Insurers are generally not fiduciaries and Greenberger has not alleged with any specificity any reason why they should be considered so here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PARVATI CORP. v. OAK FOREST (December 23, 2010)

In early 2004, Parvati Corp. decided to sell a motel it owned in Oak Forest, Illinois to Bethlehem Enterprise, Inc. The sale was contingent on Bethlehem's ability to secure municipal permission to operate a senior-living facility on the site. The Oak Forest Zoning Commission denied the request in early 2006, citing a recently enacted ordinance that prohibited the requested use. Parvati and Bethlehem filed suit seeking judicial review of the administrative decision. They also sought money damages under federal statutory and constitutional claims. Judge St. Eve (N.D. Ill.) affirmed the administrative decision and dismissed a state law administrative review count. She then, on plaintiffs' motion, dismissed the federal statutory and constitutional claims and entered final judgment. Several months later, Parvati (without Bethlehem) filed a new lawsuit reasserting the federal statutory and constitutional claims. After several more months, Parvati moved for post-judgment relief in the original case on the grounds that the City had misrepresented the validity of the ordinance on which it relied. The City responded on the merits but also maintained that Parvati lacked standing because it had since conveyed the property to its lender in lieu of foreclosure. The district court found that Parvati had standing, notwithstanding the sale of the property, because of the potential preclusive effect of the judgment on Parvati's new lawsuit. On the merits, however, the district court rejected the request for post-judgment relief because Parvati could have raised the ordinance’s invalidity before judgment. Parvati appeals.

In their opinion, Associate Justice O'Connor (Ret.) and Seventh Circuit Judges Williams and Sykes vacated and remanded with instructions to dismiss for want of jurisdiction. The Court addressed the central issue of standing. Parvati certainly met all the standing requirements at the inception of litigation. It owned the property and suffered an actual injury traceable to the City's conduct. Once it transferred ownership of the property, however, it lost its standing. First, the available relief cannot help its cause. Next, the Court then rejected the district court's basis for standing -- the refiling of the federal statutory and constitutional claims. The Court noted that constitutional standing requires that the injury be "fairly traceable" to the City's conduct. Here, the injury (the potentially preclusive effect of the earlier judgment) is not traceable to any conduct of the City. Instead, it is traceable exclusively to Parvati‘s litigation strategy and conduct. The potential injury would not exist had Parvati pressed its statutory and constitutional claims in the original litigation. Thus, Parvati lacks standing and the court should not have entertained its motions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SALLENGER v. CITY OF SPRINGFIELD (December 17, 2010)

In early 2002, Andrew Sallenger was living with his mother, his sister, and his sister's four children at his mother's house in Springfield, Illinois. Sallenger suffered from bipolar disorder and schizophrenia. In the middle of the night on April 30, Sallenger experienced a psychotic episode. He was screaming, breaking things, and running around the house naked. His sister called 911. She warned the police of his condition and his strength (6 feet tall, 262 pounds). Three officers responded and eventually, although not without great difficulty, were able to subdue him. They used a hobble, a device that limits movement by strapping one's lower legs to one's hands. A few minutes after the officers subdued Sallenger with a hobble, he stopped breathing. The officers removed the hobble and administered CPR, without success. Sallenger’s Estate brought several claims against the officers and the City, including a § 1983 claim alleging a Fourth Amendment violation for failing to adequately respond to Sallenger’s medical needs and a Monell claim against the City for failure to train in the use of the hobble. They also brought excessive force claims against the three officers. Those claims were tried to a jury and resolved in the officers' favor. Judge Scott (C.D. Ill.) granted summary judgment against the Estate on the medical needs and Monell claims. The Estate appeals.

In their opinion, Seventh Circuit Judges Posner, Rovner, and Sykes affirmed. The Court applied an objective reasonableness standard to the medical needs claim and considered four criteria: the need for medical attention, the severity of the need, the nature of the required treatment, and any police interests. The Estate's case rests on the timing of two police calls and the inferences that can be drawn from them. One call came in at 2:15 a.m. In that call, one of the officers reported that Sallenger was unconscious. The second call, which came in at 2:22 a.m., was from a police lieutenant reporting that he was at the scene. Combined with the fact that the lieutenant was present when efforts to resuscitate began, the Estate argues that it is entitled to an inference that the officers waited seven minutes after knowing Sallenger was unconscious before they tried to resuscitate him. The Court rejected this inference. All inferences must be drawn in the Estate’s favor on summary judgment, but those inferences must be reasonable. Here, the officers and Sallenger's sister all testified that resuscitation efforts began as soon as they knew that he was unconscious. The lieutenant also testified that his call did not necessarily take place immediately upon his arrival. In light of that testimony, and without more support, the inference requested by the Estate is unreasonable. The Court also agreed with the district court's summary judgment ruling on the Monell claim. A municipality cannot be liable unless there is an underlying constitutional violation by an employee. Here, a jury found that none of the officers was liable for a constitutional violation on the excessive force claim and the Court affirmed summary judgment for the officers on the medical needs claim. Therefore, there can be no municipal liability. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

RELATIONAL, LLC v. HODGES (December 8, 2010)

Robert Hodges and his brother operated Laminate Kingdom, a flooring business in Florida. In 2005, Hodges personally guaranteed up to $750,000 of Laminate's indebtedness to Relational, an equipment financer. The contract allowed for service of process on Hodges at his primary residence address in Miami by registered or certified mail. Relational brought suit on the guarantee shortly after Laminate entered bankruptcy proceedings. When it tried to serve Hodges by mail, it discovered that he had sold his house and returned to the United Kingdom without any forwarding address. Relational used a private investigator to locate Hodges. It discovered a U.K. government database on which Hodges listed his residential address in Harborne, Birmingham. Process server Karen Johns delivered the complaint to the listed address and signed a return of service and affidavit stating that she served a man at that address who identified himself as Robert Hodges. Soon, Relational received correspondence from English solicitors claiming that the address was not that of Robert Hodges but of his grandmother and that none of his family members knew of Hodge’s whereabouts. On Relational’s motion, the court entered a default judgment for $750,000. Relational attempted to enforce the default judgment for almost a year in the U.K. It met with resistance and delays by Hodges. The day before a hearing was scheduled in the U.K. to enforce the judgment, Hodges filed a Rule 60(b)(4) motion in the U.S. court, claiming he was never served. The court held an evidentiary hearing. When the court refused to allow John's to testify telephonically, Relational obtained and offered a supplemental affidavit. The supplemental affidavit added to her original affidavit a physical description of the man she served, which matched Hodges. The supplemental affidavit was not, however, certified by an administrator of oaths. Hodges testified that he did not live at the address, that he was never served, and that he was in a local pub on the day in question. Judge Coar (N.D. lll.) denied Hodges’ motion to strike the supplemental affidavit and denied, as well, his motion to vacate. Hodges appeals.

In their opinion, Seventh Circuit Judges Wood, Evans, and Sykes affirmed. The only issue on appeal was the factual question of whether Relational proved service on Hodges. The Court noted that the supplemental affidavit, notwithstanding the substantial attention it received from both parties, was immaterial. A signed return of service is prima face proof of service and can only be rebutted with strong and convincing evidence. Johns' original affidavit identifies the person she served as well as the time and place of service. That is all that is required to shift the burden to Hodges to rebut the presumption. Here, the district court found that Hodges failed to do so -- relying principally on credibility determinations. The district court noted that Hodges' behavior was consistent with dodging his obligations. He left the country without a forwarding address, he listed an address with the U.K. government that he then claimed was not his residence, and he delayed the judgment enforcement proceedings for almost a year. The Court deferred to the district court’s credibility determinations. The court was well within its discretion to deny Hodges' motion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

THE NATIONAL SPIRITUAL ASSEMBLY OF THE BAHÁ’ÍS OF THE UNITED STATES OF AMERICA UNDER THE HEREDITARY GUARDIANSHIP v. NATIONAL SPIRITUAL ASSEMBLY OF THE BAHÁ’ÍS OF THE UNITED STATES OF AMERICA (November 23, 2010)

The Bahá’í faith dates back to Persia and the mid-19th century. Its original group of followers in the United States formed the National Spiritual Assembly (the "Assembly") in 1909. In 1964, a group led by Charles Remey split off from the Assembly because of a disagreement over the line of succession. That group formed the National Spiritual Assembly Under the Hereditary Guardianship (the "Guardianship"). The Guardianship brought a lawsuit against the Assembly in the Northern District of Illinois. The suit sought possession of the Assembly's properties, including its magnificent house of worship in Wilmette, Illinois. The Assembly counterclaimed for trademark infringement and unfair competition. The district court held for the Assembly, finding that it was the highest authority for the Bahá’í Faith in the United States and was entitled to the exclusive use of its marks. In 1966 , the court entered an injunction prohibiting the use of the Assembly's marks by the Guardianship. The Guardianship dissolved shortly thereafter. Forty years later, the Assembly returned to court seeking contempt sanctions against the several individuals and organizations: a) Joel Marangella, who was Remey's assistant and actively involved in the Guardianship, but who later split off from Remey and organized several religious assemblies, including the Provisional National Bahá’í Council (the "Council") b) Franklin Schlatter, who was a founder, officer, and active member of the Guardianship, but who also later joined the Council, c) the Council, and d) two organizations created by Dr. Leland Jensen (Jensen served at one time as a Guardianship Board member but was no longer active in the organization at the time of the earlier litigation), one of which handles administrative matters and the other of which publishes books regarding the Bahá’í faith. After a thorough evidentiary hearing, Judge St. Eve (N.D. Ill.) concluded that the respondents were not in privity with the Guardianship and were thus not bound by the injunction. In so holding, she expressly rejected the Merriam decision from the First Circuit. The Assembly appeals.

In their opinion, Seventh Circuit Judges Bauer, Manion, and Sykes affirmed. The Court first commented briefly on the content of the original injunction. A few years after it was entered, the Supreme Court decided Presbyterian Church, in which it stated that a civil court could decide church property claims based on "neutral principles of law," but could not resolve underlying disputes over doctrine. The Court found certain aspects of the original injunction in tension with Presbyterian Church. Although the content of the injunction was not under review, the Court stated that it would proceed with some sensitivity to the constitutional issue. On the merits, the principal issue was whether the respondents, all non-parties to the original litigation, were nonetheless bound by the terms of the injunction. The general rule is that one is not bound by a judgment in litigation in which one is not a party. One exception is for a party's officers or agents. But that exception only applies when they act in their official capacities. Since the Guardianship dissolved decades ago, that exception cannot apply. Another exception applies to people acting in concert with a bound party. On the facts in this record, the exception also is not implicated. Finally, there is an exception for those in "privity" with a bound party. Although there is no hard and fast rule for what constitutes privity, the Court emphasized that the doctrine is bound by due process and it is restricted to those so closely tied with bound parties that it is reasonable to conclude that their interests were represented in the original litigation. The Court identified two categories of parties in privity -- successors in interest and those "legally identified" with a bound party. The two principal authorities on "legally identified" are Judge Hand's decision in Alemite and the First Circuit's decision in Merriam. The district court declined to follow Merriam because of a perceived tension with Alemite. The Court disagreed, concluding that the opinions could be reconciled. While Alemite's conclusion was that a salesman was not bound by an injunction issued against his corporation, the court recognized that a class of persons that are legally identified with the bound party could be bound. In Merriam, the court held that a key employee could be bound if there is a very close identity of interest combined with significant control in the organization and an involvement in the underlying litigation. Although the Court concluded that the district court erred in not following Merriam, it ultimately concluded that the court reached the right result. The Merriam inquiry includes factors such as a person’s position and degree of responsibility in a corporation, the person's participation in the original litigation, and the similarities between the activities of the bound party and the respondent. Here, with respect to Marangella, Schlatter, and the Council, the Court identified the significant dissimilarities between the activities of the Council and those of the Guardianship. Although Marangella and Schlatter participated in the Guardianship to varying degrees, they broke off and formed a new organization that was not a mere continuation of the old. In fact, the district court found a "robust doctrinal divide" between the organizations. They should not be considered "legally identified" with the Guardianship. Next, with respect to the Jensen organizations, the Court focused on Jensen's disassociation from any active governing role in the organization before the injunction was issued. Thus, Jensen does not even satisfy the “key employee” prong of the Merriam test. Finally, the Court rejected the argument that a trademark registration filing that claimed a path of successorship from Remey to the current president of Jensen’s organizations established legal successorship so as to bind those organizations. There was no evidence of any link between Remey and the organizations other than the filing.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CYRUS v. TOWN OF MUKWONAGO (November 10, 2010)

Twenty-nine-year-old Nicholas Cyrus lived with his parents in Mukwonago, Wisconsin. Cyrus suffered from bipolar disorder and had occasional delusional episodes. He was known by the local police in his small community for his unusual behavior but was not considered dangerous. On the evening of July 8, 2006, Cyrus left his parents' home wearing only his bathrobe following a dispute with his mother . He remained missing until early the next morning when a town resident reported to the police that an unknown man wearing only a bathrobe was trespassing on his property. Lt. Czarnecki responded to the call. Czarnecki suspected that the "unknown man" was Cyrus. He knew Cyrus and knew that he had been reported missing the night before. There are slight factual disputes regarding what happened next but, generally, Czarnecki unsuccessfully tried to get Cyrus' attention and cooperation. After Cyrus refused a request to talk and moved toward the house, Czarnecki used his Taser on him. Cyrus fell to the ground. He tried to get up but wobbled and fell. Czarnecki used his Taser again and Cyrus rolled down the driveway. By this time, a second officer had arrived at the scene. The two officers tried to handcuff Cyrus but he was lying on his hands. When the officers could not pry his hands loose, Czarnecki used his Taser several more times. The officers finally got him handcuffed but, when they rolled him over, they discovered he was not breathing. Cyrus died later that day. His parents brought a § 1983 Fourth Amendment excessive force claim against the officers and the municipality. The plaintiffs offered two experts -- one to testify regarding reasonable force and one (the Medical Examiner, who reformed the autopsy) on the cause of death. The Medical Examiner testified at her deposition that many factors contributed to Cyrus' death, including the stress of the struggle, his fear, his mental condition, his physical position, the pain, and the shock. She testified that she could not state that any particular factor was more significant than another. Judge Randa (E.D. Wis.) excluded the testimony of both experts relating to the cause of death, principally because the Medical Examiner could not isolate a primary cause of Cyrus' death. The court then granted summary judgment to the defendants, finding that there were no material disputes of fact and that the Taser use was not excessive force as a matter of law. Plaintiffs appeal.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Simon reversed and remanded. The Court recognized that most of the material facts were undisputed (principally because the victim was dead). However, it rejected the district court's conclusion for two reasons. First, the Court identified several material facts that were in dispute. Czarnecki testified that he used his Taser only five or six times but the Taser's internal register recorded 12 trigger pulls. The parties also disagreed about whether Cyrus walked or ran toward the house. Second, excessive force claims require an analysis of all the circumstances surrounding the use of force. Facts that may not technically be in dispute may be susceptible of different interpretations, making summary judgment appropriate. For example, there were potentially different inferences that a jury could draw from the fact that Cyrus rolled down the driveway. Was it an attempt to escape or merely an involuntary reaction to the shock? Other factors the jury could consider also tended to support the unreasonableness of the force: Cyrus had not committed a serious offense, he did not violently resist the officers, he was not armed, and he suffered from a mental illness. Since a jury could reasonably conclude that Czarnecki's multiple Taser uses constituted unreasonable force, summary judgment was inappropriate. The Court also rejected defendants' alternative position that plaintiffs could not prove causation without the excluded expert testimony. The Court conceded that proof of causation will be more difficult without the Medical Examiner's testimony. However, it found that the record was not totally devoid of evidence upon which a jury could conclude that the force caused Cyrus's death. Expert testimony is not necessary if the facts relied on are such that lay persons can understand them and draw appropriate conclusions from them. Here, Cyrus stopped breathing shortly after receiving the shocks, there is no evidence of a prior injury or condition, the toxicology report showed the absence of drugs, and there is no evidence of an intervening cause. On this record, the Court concluded that a jury could find causation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

REDMOND v. FIFTH THIRD BANK (October 20, 2010)

After he defaulted on his mortgage and became the target of a foreclosure proceeding, James Redmond filed for Chapter 13 bankruptcy protection. The bankruptcy court entered an agreed order which stayed the foreclosure, established a monthly payment plan, and required an April 1, 1998 balloon payment to Fifth Third Bank, the lender. Just prior to April 1, Redmond asked for a payoff latter in order to close on a new loan. He got two letters – each with a different amount. He asked for an explanation but eventually failed to get the loan (he says because of the Bank’s error) and failed to make the balloon payment. The Bank again brought a foreclosure action. The parties litigated that suit (for seven years!) until a few weeks before trial. At that point (June 2005), Redmond asked the bankruptcy court to reopen the bankruptcy proceedings, alleging a violation of the agreed order and plan. It refused. A year later, Redmond filed another motion asking to reopen the proceedings. The bankruptcy court again refused, but the district court on appeal reversed and instructed the bankruptcy court to consider whether the Bank sought any pre-petition debts. On remand, the bankruptcy court again denied the motion on the grounds that it was untimely, that the state court could resolve the issues, and that the arguments lacked merit. Judge Manning (N.D. Ill.) affirmed. Redmond appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes affirmed. The Court first noted that a bankruptcy judge has a great deal of discretion in deciding whether to reopen a case and that the standard of review is an abuse of discretion. The bankruptcy court considered the proper factors: length of time since the case was closed, an available forum to entertain the claim, and whether the claims have merit. The Court addressed each in turn. First, with respect to timeliness, the Court found no abuse of discretion. The record suggested that the timing of the motion (a few weeks before trial) was for the purpose of delay. That, combined with the prejudice to the Bank in incurring years of attorneys’ fees, justified the denial. Second, with respect to the merits of the underlying claims, the Court also found no abuse of discretion. It agreed that Redmond’s claims (that the payoff letter violated the automatic stay, the agreed order, the plan, and the discharge) were all without merit. Finally, the Court agreed that Redmond had an adequate forum (the state court) to litigate his claims.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PALKA v. SHELTON (October 7, 2010)

Peter Palka's hopes of becoming a Chicago police officer were dashed when he was kicked out of the Police Academy. His father Tadeusz, a 28-year veteran of the Cook County Sheriff's Department, thought the termination was discriminatory and based on the fact that Peter was Polish. The elder Palka tried to convince Matthew Tobias, the official in charge of the Academy, to reinstate his son. Tobias assured Palka that Peter was terminated for cause and refused to reverse the decision. A few months later, the receptionist at his children’s school advised Tobias that an unidentified man with a Polish accent called and asked questions about the children. Tobias suspected Palka and began an investigation. Phone records revealed that someone in the Cook County Building at 69 W. Washington in Chicago had placed a call to the school on the afternoon in question. Tobias was now convinced -- he reported the call to the local police, he opened an incident report and checked Palka for outstanding warrants, he asked senior officers to speak with Palka, and he filed a formal complaint with the Sheriff's Department's Office of Internal Affairs. Palka was suspended with pay. Shortly before a formal disciplinary hearing that would decide his fate, the Department offered Palka full retirement benefits (including badge and firearm credentials) if he resigned. He did resign, but never received his credentials. Palka filed suit pursuant to § 1983, alleging procedural and substantive due process violations, occupational liberty deprivations, and Monell claims. Judge Kendall (N.D. Ill.) dismissed the complaint with prejudice. Palka appeals.

In their opinion, Judges Ripple, Kanne, and Sykes affirmed. The Court rejected each of Palka’s contentions in turn. First, the procedural due process claim relating to his suspension fails because a suspension with pay does not trigger due process protection unless there is a claim of indirect economic consequences. Palka makes no such allegation. Second, the procedural due process claim relating to his resignation also fails. Palka was simply given a choice to avail himself of the procedural protections offered by the Merit Board (and risk losing everything) or to resign with retirement benefits. He was not deprived of due process protections -- he traded them away. Third, the substantive due process claim fails. Public employment termination does not give rise to a substantive due process claim unless it is accompanied by an allegation of other constitutional violations or inadequate state remedies, neither of which is present here. To the extent that Palka relied on police misconduct to support the substantive due process claim, the Court stated that it did not meet the high “shocks the conscience” threshold. Fourth, the occupational liberty claim fails. Palka failed to allege public disclosure an essential element of the claim. The County's failure to grant him badge and firearm credentials, on which Palka bases this claim, was not publicly disclosed nor does Palka allege that any potential future employer learned of it. Finally, because there is no constitutional violation, there can be no Monell liability.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

COGSWELL v. CITIFINANCIAL MORTGAGE CO. (October 5, 2010)

In January 2001, the Patrick Group (PG) purchased a mortgage (and the underlying note) from CitiFinancial Mortgage Co. However, CitiFinancial could not locate the original note or mortgage. It gave PG a copy of the mortgage but could not locate even a copy of the note. PG ran into complications when it substituted for CitiFinancial in the pending foreclosure proceeding. A title search disclosed a gap in the recorded ownership of the mortgage. Because PG could not produce even a copy of the note, the court directed a verdict against PG. The appellate court affirmed. PG then brought suit for breach of contract against CitiFinancial. Judge Norgle (N.D. Ill.) granted summary judgment to CitiFinancial, concluding that the agreement did not require transfer of the note and that, even if it did, CitiFinancial’s failure to transfer was not the cause of PG's damages. PG appeals.

In their opinion, Judges Flaum, Ripple, and Sykes reversed and remanded. The Court first addressed whether the contract required the physical transfer of the note. The Court took issue with the district court's treatment of this as a question of law, as if it were a question regarding the existence of a contract. Here, there is no doubt that a contract exists. The only question concerns its terms -- and that is a question of fact. Relying on PG's offer letter, the contract itself, and an uncontested affidavit, the Court concluded that the contract was ambiguous. Although the district court's reading of the contract was plausible, it is not the only reasonable reading. The district court improperly resolved this factual dispute on summary judgment. It must go to a trier of fact. The Court turned to causation. Again, the Court disagreed with the district court and its holding that the failure to transfer was not the cause of damages because PG could have enforced its rights on alternative paths. The Court stated that Illinois applies a special rule to breach of contract cases when the alleged harm is a result of an adverse judicial outcome. In those cases, causation is a question of law and depends on an analysis of what a reasonable court would have done had the defendant not breached the contract. Here, the Court concluded that a reasonable Illinois court would have allowed PG to proceed with the foreclosure if it had a copy of the note. Thus, CitiFinancial's breach caused PG's damages. The Court also rejected CitiFinancial’s alternative paths argument, although it first re-categorized the arguments as "failed to mitigate," rather than failed to prove causation. It held that, under Illinois foreclosure law, a reasonable court would have ruled against PG on both the lost-note affidavit and the personal judgment theories.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

IN RE: RESOURCE TECHNOLOGY CORP. (October 1, 2010)

Resource Technology Corporation (RTC) used to be in the business of converting gas emissions from garbage landfills to electricity. It had exclusive gas conversion rights at several Illinois landfills. The business failed and RTC entered bankruptcy. The bankruptcy trustee entered into a settlement agreement with Chiplease and Scattered, two creditors founded by former RTC officers and directors. Among other things, the agreement provided: a) the trustee agreed to assume several of the landfill contracts and assign them to Chiplease and Scattered, b) Chiplease agreed to pay RTC's operating expenses during the bankruptcy, and c) Chiplease agreed to place $500,000 in escrow as security for the operating expense agreement. The bankruptcy court approved the settlement. The landfill owners objected to the assignment, arguing that § 365's "adequate assurance of future performance" requirement was not met. The principals of Chiplease and Scattered testified that the two companies would lend the requisite $3 million to the trust that had been set up to run the business. Nevertheless, the bankruptcy court rejected the assignment. It concluded that the trust was not capable of performing, that the trust could not require Chiplease and Scattered to lend the money, and that the two companies had financial problems of their own. Judge Kennelly (N.D. Ill.) affirmed. The trust appeals.

Meanwhile, Chiplease never established the $500,000 escrow as required by the agreement. Acting on a complaint by administrative claimants, the bankruptcy court rejected Chiplease's argument that it should be excused because it had already actually paid over $1 million in expenses and ordered it to establish the escrow. Judge Kennelly again affirmed. He also ordered Chiplease to establish the escrow and found it in contempt when it failed to do so. Chiplease appeals.

In their opinion, Judges Ripple, Rovner, and Sykes affirmed on the consolidated appeals. First, with respect to the assignment of the contracts, the Court recited the factors relevant to "adequate assurance”: financial ability, economic climate, whether a guarantee exists, the reputation of the party, and any past history. The bankruptcy court applied the correct standard -- a "more likely than not" requirement. The record showed that performance would require $3 million, that financing was essential, that the trust had no enforceable right to financing, and that the trust was controlled by the same people who controlled RTC when it entered bankruptcy. In addition, the record was practically silent with respect to how Chiplease and Scattered were going to raise the necessary funds. The bankruptcy court acted within its discretion in concluding that the trust failed to carry its burden. With respect to the escrow appeal, the Court concluded that the bankruptcy court did not abuse its discretion in requiring Chiplease to comply with the clear and unambiguous terms of the order. The bankruptcy court was interpreting its own order and is entitled to substantial deference. Finally, with respect to the contempt appeal, the Court concluded that the district court did not abuse its discretion. There was actually no dispute that Chiplease failed to comply with the court's order. Its only response was an “inability to pay” defense. Particularly in light of evidence that Chiplease presented in support of the landfill contract assumption that it had millions of dollars in assets, Chiplease did not meet its burden of proving that inability.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FINCH v. PETERSON (September 10, 2010)

In 1978, the Indianapolis Police Department and the United States Department of Justice entered into a consent decree designed to correct racial discrimination in the Department. The long-range goal of the decree was to increase the number of African-Americans to the point where it reflected the racial composition of the workforce in the city. In part, it provided that assignments, transfers, and promotions were to be based on appropriate criteria without regard to race. Now fast forward almost 30 years to 2006. That year, the Department promoted 11 lieutenants to captain. To prepare for the promotions, the Department screened, tested, and ranked each applicant. Instead of promoting the highest-ranked applicants, however, the Department promoted three African-Americans who ranked as low as 26th. Three white applicants, all of whom ranked in the top 10, brought suit pursuant to Title VII, § 1981, and § 1983. Magistrate Judge Lynch (S.D. Ind.) rejected the individual defendants' argument that they were entitled to qualified immunity because their actions were required by the consent decree and denied their motion for judgment on the pleadings. The defendants appeal.

In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court first confirmed its jurisdiction under the collateral-order doctrine. Even in the absence of a final judgment, a decision denying qualified immunity on an issue of law is immediately appealable. On the merits, the Court recited the familiar two questions raised by a qualified immunity analysis -- was a constitutional right violated and was the right sufficiently well-established to put the defendants on notice. The Court rejected the defendants' only argument that their race-based promotion decisions did not violate the Constitution -- that is, that the consent decree required them. Although it conceded that the consent order had general goals of increasing the number of African-American captains, the Court pointed to the several, very specific provisions of the order requiring race-neutral decisions. Other provisions of the consent decree (e.g., requiring sufficient African-American representation in an applicant pool) were designed to allow the department to reach its general goal without engaging in race-based promotions. The Court also rejected the defendants' only argument with respect to the "sufficiently well-established" prong because it also relied on the premise that the consent order required them to promote the African-Americans.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

BROWN v. AUTOMOTIVE COMPONENTS HOLDINGS (September 8, 2010)

Letecia Brown was employed at Ford's Indianapolis plant from 1998 until her discharge in 2006. Her discharge resulted from her noncompliance with the FMLA leave policies in the Collective Bargaining Agreement (CBA). Under the CBA, an employee desiring leave: a) must submit a doctor's form before the leave’s expiration date, b) is deemed AWOL if she fails to do so, c) is considered AWOL if she fails to do so even if she seeks extension, and d) is sent a five day termination notice by registered mail if AWOL. Brown requested leave on August 11, 2006. Her doctor submitted the required form on August 21, indicating an August 28 leave expiration date. He also referred her to a psychiatrist. When Brown could not get an appointment with the psychiatrist until August 29, she asked her referring doctor to submit additional paperwork for an extension. He failed to do so – she failed to check. Brown's psychiatrist recommended that she extend her leave through September 15. Brown claims she advised Ford of the extension and was told to pick up a new form. Once her original leave expiration date (August 28) arrived without additional forms, Ford considered her AWOL and sent her a termination notice on August 31 by certified mail. Brown picked up a form from the clinic on September 6. She claims that she advised Ford that she could not return the completed form until September 11. On September 11, she found out that she had been fired. Her union filed a grievance but withdrew it because of her failure to follow the CBA procedures. Brown filed suit, alleging FMLA interference. Chief Judge Young (S.D. Ind.) granted summary judgment to the defendants. Brown appeals.

In their opinion, Circuit Judges Evans and Sykes and District Judge Der-Yeghiayan affirmed. The FMLA prohibits an employer from interfering with an employee's exercise of any rights under the Act. In order to state an interference claim, an employee must prove that she was eligible, that the employer was covered, that she was entitled to the leave, that she provide sufficient notice to her employer, and that her employer denied her FMLA benefits. At issue in the appeal was the notice element. The FMLA regulations in effect at the time addressed the notice requirement in the context of an unforeseeable extension of leave. The regulation provided that the employee should give notice as soon as practicable -- "within no more than one or two working days of learning of the need for leave." Here, Brown's doctor referred her to the psychiatrist on August 21. On that same day, she learned that she would not be able to see him until August 29, the day after her leave expired. She knew at that time that she would need an extension. The regulation required her to notify Ford within one or two days of August 21. She did not contact Ford until August 30. Brown fails to satisfy the notice element of an FMLA interference claim.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

UNITED STATES SECURITIES AND EXCHANGE COMMISSION v. HYATT (September 3, 2010)

In June and August of 2008, the SEC issued two third-party subpoenas to Brian Hollnagel and BCI Aircraft Leasing (BCI) in connection with other federal litigation. Over several weeks, BCI produced a significant amount of material. The SEC found problems with each production and requested additional information. The SEC ultimately became frustrated with what it believed to be inadequate compliance. On August 28, it filed a motion for a rule to show cause why BCI should not be held in contempt. The notice of motion indicated that the SEC would appear in court on September 3 and "seek a hearing date" on its motion. On September 3, BCI did not appear and the SEC asked the court to order a complete and proper production, to hold BCI in contempt, and to award attorney's fees. The court did so. It then issued two orders. The first indicated that the matter was continued to September 10 and asked for BCI's response to the motion by September 5. The second order was prepared by the SEC -- it held BCI in contempt, it ordered a full and complete production by September 5, it imposed a $1000 per day fine for noncompliance, and it awarded attorneys fees. The court vacated its first order the following day. Although BCI filed a substantive response, the court struck it as moot. Eventually, Judge Lindberg (N.D. Ill.) found that BCI had substantially complied with the subpoenas and rescinded the fine. He did not, however, vacate the contempt finding or the award of fees. BCI appeals.

In their opinion, Circuit Judges Posner and Sykes and District Judge Van Bokkelen vacated the contempt order. The Court first rejected BCI's argument that the subpoenas, which were issued by the SEC attorney, were not court orders and could not therefore be the basis for a contempt finding. Rule 45 of the Federal Rules of Civil Procedure is on point. Rule 45(e) specifically states that a court may hold a person in contempt for failure to comply with a subpoena and does not distinguish between a subpoena issued by a court or one prepared by an attorney. The Advisory Committee Notes make the point even more clearly. The notes, however, also make it clear that a court's contempt power should be used more sparingly and with greater attention to the non-party's rights when the subpoena is issued by an attorney. Although BCI did not exercise its rights to object to or move to quash the subpoenas, it was certainly entitled to adequate notice of an attempt to hold it in contempt. At a minimum, the SEC was required to give notice of the place and time for a hearing. Here, the Court noted that the SEC could have simply moved for a finding of contempt and provided notice to BCI of the time and place when it would appear on its motion. But it did not. Instead it used the obsolete and unnecessary “motion for rule to show cause” procedure. Under that procedure, the first appearance of the parties seeks only a preliminary order directing the alleged contemnor to "show cause" why it should not be held in contempt. The Court concluded that the SEC, having chosen to proceed in a certain manner, should be held to the traditional practice associated with that procedure. BCI did not have adequate notice that a hearing on contempt was to be held on September 3.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

TRENTADUE v. REDMON (August 18, 2010)

During the 2003-2004 school year, Major Lee Redmon supervised the Junior ROTC program at Pekin High School and Mark Cole was one of his instructors. Cole admittedly had sexual contact with a female student on multiple occasions. The student reported the abuse to her mother on November 5. They immediately reported the incident to school authorities, the school district, and the police. The student's stepfather confronted Redmon. According to the stepfather, Redmon said that "this incident has happened before." After the local newspaper reported the incident, two former students came forward with allegations that they two had been abused by Cole, one in 1996 and one in 2002. The student brought suit against Redmon under § 1983 and against the school district under Title IX. Judge Mihm (C.D. Ill.) dismissed the action against Redmon based on circuit precedent that Title IX precludes a § 1983 action based on supervisor liability. The court later entered summary judgment for the school district on the Title IX claim. The student appeals.

In their opinion, Judges Flaum, Wood, and Sykes affirmed as modified. The Court first concluded that the district court was in error in dismissing the § 1983 claim -- but only because of the Supreme Court's intervening holding in Fitzgerald that such a claim is not precluded by Title IX. Since the district court did not address the claim on the merits, a remand would normally be appropriate. However, here the § 1983 claim rested on the same set of facts as the Title IX claim, which the court did fully consider on the merits, so a remand is unnecessary. Liability under either theory requires evidence of knowledge and indifference or facilitation -- on the part of Redmon with respect to the § 1983 claim and on the part of the school district with respect to the Title IX claim. The parties do not dispute that neither the school officials nor Redmon knew of Cole's abuse of the plaintiff. It is also undisputed that no school official knew of the two earlier incidents. The only issue, therefore, is whether Redmon knew of either of the earlier incidents. Plaintiff's entire argument rests on Redmon’s "this incident happened before" statement. But Redmon testified that he did not know of Cole's earlier abuse and explained his reference to an earlier incident as one involving his predecessor, not Cole. On that record, the Court concluded that the plaintiff's interpretation of the remark was mere speculation unsupported by evidence. At the summary judgment stage, plaintiff had the obligation to identify some evidence on that issue.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SOTTORIVA v. CLAPS (August 17, 2010)

Joseph Sottoriva was a State of Illinois employee and a member of the United States Army Reserve. He was on leave from the State for approximately 17 months in 2003 and 2004. The State's policy was to retain reservists on the payroll and continue to compensate them at their regular rate of pay, minus their military income. The State consistently overcompensated Sottoriva, despite its best efforts to calculate the proper amounts. Shortly before Sottoriva's return, the State calculated that he owed approximately $18,000 in excess compensation. He filed a union grievance, which the union (apparently without his consent) resolved with the State by agreeing to repay the $18,000 under a payment plan. While still negotiating the payment plan, the State recalculated the excess compensation as $24,000. Sottoriva was given several repayment options. When he selected none of them, the State notified him that it would begin involuntary withholding. Sottoriva brought a three count complaint against the department's director and the State Comptroller: a) Count I sought to enjoin any wage reduction, alleging due process violations with respect both to the original union grievance procedure and the State's failure to conduct any hearing with respect to the recalculation, b) Count II sought monetary damages for Sottoriva’s tax losses, and c) Count III sought to remove the director from office for an alleged violation of the State Finance Act. On Count I, Judge Scott (C.D. Ill.) granted summary judgment to the defendants with respect to the $18,000 calculation but granted summary judgment to Sottoriva on any amount above the $18,000 figure, concluding that the State had not provided a meaningful hearing. Sottoriva withdrew Count II. The court held that Count III was barred by the Eleventh Amendment. Sottoriva sought an award of attorney's fees. The court carefully calculated a "lodestar" figure and reduced it by 67%. Sottoriva appeals.

In their opinion, Judges Ripple, Kanne, and Sykes vacated and remanded. The Court noted that § 1988(b) allows the district court, in its discretion, to award attorney's fees to a prevailing party. Although the Court grants great latitude in setting a fee award, a district court must justify its award. The Court applied a two-part test to the district court's reduction of the "lodestar." The first question was whether a downward reduction was appropriate. The second question was whether the amount of the reduction was reasonable. Here, the Court answered the first question affirmatively. Although Sottoriva prevailed on one portion of his due process claim, he also failed on a significant part of his request for relief. With respect to the amount of the reduction, however, the Court vacated. Although it expressed no opinion on the reasonableness of the 67% reduction, it concluded that the district court did not sufficiently explain its rationale for imposing that reduction. In particular, the Court was concerned that the lower court was engaged in unacceptable "claim counting" and simply awarded one third of the fees incurred because Sottoriva prevailed on one of the three counts asserted. The lack of explanation amounted to an abuse of discretion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GBUREK v. LITTON LOAN SERVICING (July 27, 2010)

Camille Gburek’s mortgage was serviced by Litton Loan Servicing. As of December 2007, Gburek was in default. She received two letters that month, one from Litton and one from Titanium Solutions on behalf of Litton. Neither letter demanded payment. The Litton letter offered to "discuss foreclosure alternatives" and "help preserve your homeownership." It requested financial information to help it consider its options. The Titanium Solutions letter also requested personal financial information and also offered to assist Gburek to find a way to avoid foreclosure. Gburek filed a class action under the Fair Debt Collection Practices Act. She alleges that each of the communications to her, as well as the communication between Litton and Titanium Solutions, violated the Act. Judge Shadur (N.D. Ill.) dismissed the complaint for failure to state a claim, concluding that the communications were not made "in connection with the collection of any debt" as required by the Act. Gburek appeals.

In their opinion, Judges Bauer, Flaum, and Sykes reversed and remanded. The Court noted that there are two threshold requirements for the FDCPA to apply. The first, that the defendant is a "debt collector," is conceded. The second, whether the communication at issue was "made in connection with the collection of any debt," is the issue on appeal. The Court looked to three of its prior decisions for guidance -- Bailey, Horkey, and Ruth. Bailey concluded that a communication was not "made in connection" because the debtor was not in default, any threats contained in the letter were prospective, and the communication contained no payment demand. The lack of payment demand was simply one factor in the analysis. Horkey concluded that the act did apply, even without an explicit demand for payment, when the reason for the communication was to induce the debtor to settle the debt. Finally, Ruth concluded that the Act applied to a privacy notice that was sent with a collection letter. The Court focused on the relationship between the parties and the fact that the communications were sent together. Thus, the Court emphasized that there is no bright line rule with respect to a demand requirement. Several factors are relevant in the analysis -- whether there is an explicit payment demand, the purpose and context of the communications, and the relationship between the parties. The Court applied the principles to each of the three communications at issue to determine whether the allegations were sufficient to survive the motion to dismiss. With respect to each of the letters sent to Gburek, the Court found that their context and content brought them within the Act. Gburek was in default and both letters sought financial information and her cooperation in discussing alternatives to foreclosure. The communication between Litton and Titanium Solutions is likewise "made in connection." It is clear that Litton engaged Titanium Solutions for the sole purpose of assisting it in collecting the debt. The Court declined to address any of the substantive issues with respect to the alleged violations in that they were not adequately developed on appeal.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

OGDEN V. ATTERHOLT (MAY 18, 2010)

In late 2006, Paul Ogden was hired as the manager of the Title Insurance Division of the Indiana Department of Insurance. He reported to Carol Mihalik, the head of the Consumer Protection Unit. Mihalik in turn reported to James Atterholt, the Commissioner. From early on, Ogden was critical of Mihalik. He even managed to avoid her and report directly to Atterholt on some of his projects. In September 2007, Ogden took two separate steps related to Mihalik. First, he filed a formal complaint with the State Personnel Division, complaining that Mihalik did not follow hiring regulations, misused funds, and fostered a hostile work environment. A few days later, he delivered a memorandum to Atterholt requesting that his division be removed from the Mihalik’s Unit. Almost all of the reasons in support of his request referred to Mihalik’s incompetence or dishonesty. Many of them repeated items from his formal complaint. He did not refer to his formal complaint, however, nor did the memorandum suggest the need for any discipline. A few hours after receiving the memorandum, Atterholt summoned Ogden to his office and gave him an opportunity to resign or be fired. Ogden resigned -- but then sued the Department, Atterholt, and Mihalik. He claimed a violation of his First Amendment rights under § 1983. Magistrate Judge Magnus-Stinson (S.D. Ind.) granted summary judgment to the defendants. Ogden appeals.

In their opinion, Judges Williams, Sykes, and Tinder affirmed. The only First Amendment issue addressed by the Court was whether Ogden's speech was constitutionally protected. Relying on the Supreme Court's decision in Garcetti, the Court held that it was not. Garcetti tells us that public employees' speech is not constitutionally protected when the statements are made "pursuant to their official duties." Here, the Court concluded that the memorandum was simply a request for departmental reorganization – a request which fell squarely within the scope of his official duties. Although many of the reasons given alleged incompetence and dishonesty on the part of his superior, they were all made in support of this effort to convince Atterholt of the need to reorganize.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

TAMBURO v. DWORKIN (April 8, 2010)

John Tamburo designs software for dog lovers. He lives and works in Illinois. One of his products is an online database that provides pedigree information. He created the database by pulling information about pedigrees from other sources on the Internet. The sources of some of the information used by Tamburo were free public websites operated by defendants Henry, Hayes, Mills, and Dworkin. Dworkin is a Canadian resident and citizen -- the others are citizens and residents of the United States. When Henry, Hayes, and Mills discovered what Tamburo had done, they made statements on their own web sites accusing Tamburo of being a thief and of selling stolen goods. They called for a boycott of his products. They even revealed Tamburo's home address and urged their own readers to harass him. Dworkin first demanded that he remove the information from his database. When Tamburo did not do so, Dworkin sent out his own e-mails accusing Tamburo of theft and using the information for an improper purpose. Some of these messages made it to Wild Systems, an Australian company that has its own pedigree software product. Wild Systems forwarded the messages to its own e-mail list. Tamburo sued the four individuals and Wild Systems in Illinois federal court. He sought a declaration that he had violated no federal law and sought damages for antitrust violations, defamation, tortious interference, trade libel, and civil conspiracy. The district court dismissed as to all defendants on the grounds that the court lacked personal jurisdiction. Tamburo appeals.

In their opinion, Judges Bauer, Kanne, and Sykes affirmed in part and reversed in part. As an initial matter, the Court addressed the state and federal antitrust claims and concluded that the district court properly dismissed them, although they should have been dismissed for failure to state a claim. The claims were stated in a completely conclusory fashion and failed to meet the Twombly standard. The Court then turned to personal jurisdiction. Given the Illinois long-arm statute, the question for the Court was whether the defendants had sufficient "minimum contacts" with the forum to support jurisdiction. The Court concluded that none of the defendants had sufficient contacts with Illinois to support a finding of general jurisdiction. In order to establish specific jurisdiction, a) the contacts must relate directly to the challenged conduct, b) the defendant must have "purposefully directed" activities at the forum, and c) the injury must arise out of that activity. The Court looked to the Supreme Court's decision in Calder for guidance on application of the "purposefully directed" test. It found three requirements: a) intentional conduct, b) aimed at the forum state, and c) defendant's knowledge that the injury would be felt in the forum state. The Court found the first element satisfied. With respect to the second and third elements, the Court noted some tension in its decisions applying Calder -- Janmark focused on an injury in the forum state while Wallace required something more than a forum state injury. Here, there is a forum state injury arising from tortious conduct deliberately aimed at a target in the forum state. That satisfies either test and is enough to exercise personal jurisdiction over the individual defendants. With respect to Wild Systems, however, there is no allegation that it acted with knowledge of Tamburo's location or with the purpose of inflicting injury in Illinois. Thus, personal jurisdiction does not exist with respect to Wild Systems. The Court next addressed the "arise out of" requirement. Although it pointed out the conflict among the circuits with respect to the proper test, it found no need to weigh in on the issue since it concluded that the alleged injury "arose out of" the defendants' contacts even under the most rigorous approach. Finally, the Court concluded that the exercise of personal jurisdiction over the individual defendants would not offend the traditional notions of fair play and substantial justice.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SANDRA T.E. v. SOUTH BERWYN SCHOOL DISTRICT 100 (March 30, 2010)

In early 2005, local police arrested an elementary school band teacher and charged him with numerous counts of sexual abuse. Within days of his arrest, some of the victims and the victims’ families sued the school district and the principal. In response to the arrest and its attendant publicity, as well as the lawsuit, School District 100’s School Board retained the law firm of Sidley Austin. According to the engagement letter, Sidley Austin was to investigate the administration's response to the allegations of sexual abuse and provide legal services in connection with the investigation. The attorneys interviewed many employees and former employees. They took notes and prepared interview memoranda. The law firm delivered an oral report to the School Board in closed session and submitted a written summary of their investigation, which they marked confidential. After the preparation of the report, Sidley Austin did not participate directly in the litigation. The plaintiffs sought discovery from them, however. The firm turned over a number of documents, but withheld the notes and memoranda on the grounds of the attorney-client privilege and work-product doctrine. The district court ordered the firm to turn over the documents, ruling that the law firm acted as "investigators" -- not as "attorneys." Sidley Austin appeals.

In their opinion, Judges Rovner, Wood, and Sykes reversed. The Court first defined its terms: a) the attorney-client privilege protects communications between a client and its attorney, made in confidence, for the purpose of obtaining legal advice, and b) the work-product doctrine protects documents that are prepared by attorneys in anticipation of litigation. In this case, the district court's views were developed in a series of hearings relating to discovery requests against the School District. Sidley Austin was not provided notice or an opportunity to be heard. The Court concluded that the district court erred by focusing on letters from the School District to parents emphasizing the district’s desire to investigate and discover the truth. The district court did not, on the other hand, focus on what the Court considered the "most important" evidence, the engagement letter. The engagement letter specifically indicated that the investigation was a necessary prerequisite to the delivery of legal advice to the School Board. The engagement letter itself, as well as the conduct of the attorneys, brought this investigation within the attorney-client privilege under the Supreme Court's decision in Upjohn. The Court also concluded that the materials at issue were protected by the work-product doctrine. The district court's contrary conclusion was based upon its treatment of the law firm as investigators. The law firm was hired, at least in part, in response to the filing of the lawsuit. The Court emphasized that the work-product protection may actually be more than just an alternative ground for confidentiality. The attorney-client privilege may not cover all of the witness interviews, since some of the witnesses were not district employees.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

WHITLOCK v. BROWN (February 24, 2010)

The Whitlocks were camping with their daughter at the Indiana Dunes State Park in July of 2005. They came across some personal property at what appeared to be a deserted camp site. They put the items in their vehicle and told a neighboring camper that they would turn it in to park rangers. Instead of turning it in immediately, however, they left the park and went shopping. Upon their return, they left a voicemail for the property owner (having obtained his number from information found in the property) advising him that they had his property and were going to leave it with the park ranger. The owner of the property had already reported it missing and park authorities were investigating. When the Whitlocks eventually turned in the property, they were accused of theft. The investigation confirmed the Whitlocks' explanation. State investigator Brown prepared a case report and an "Affidavit for Probable Clause." He sent the affidavit to the local county prosecutor's office, and there is a dispute over whether he attached his case report to it. The Whitlocks were charged with conversion and an arrest warrant was issued. When they were stopped for a traffic violation a month later, they were arrested and held in jail for four days before the prosecutor dropped the charges. The Whitlocks sued Brown under § 1983, specifically alleging that he withheld their explanation for why they held the property for so long from his case report or application for a warrant. The district court concluded that Brown did violate their Fourth Amendment rights by withholding the exculpatory information but also concluded that he was entitled to qualified immunity because a reasonable officer could have believed that probable cause to arrest the Whitlocks existed. The Whitlocks appeal.

In their opinion, Circuit Judges Posner and Sykes and District Judge Dow affirmed. Qualified immunity, stated the Court, involves two inquiries: whether there is a constitutional violation and whether a reasonable officer, considering clearly established law, would have known his actions were unconstitutional. Here, the claim is that Brown intentionally or recklessly withheld exculpatory information from the prosecutor, which could overcome the general presumption of the validity of the warrant. The information omitted, however, must be material to the existence of probable cause. The Court first addressed the alleged withholding of the case report itself. The district court had concluded that Brown withheld the report, inferring so from its absence from the prosecutor's file. The Court disagreed. Brown testified that he had submitted the case report. Although self-serving, the testimony was not speculation and was based on Brown's personal knowledge. In contrast, the Whitlocks presented no evidence or reasonable inference that the report was not sent. Although therefore concluding that the report itself was not withheld, the Court also considered an omission in the report -- Brown's failure to include the Whitlock's innocent explanation for why they did not turn in the property immediately. The Court turned to the materiality of that missing information. The statute upon which the warrant was based prohibits "unauthorized control over property" of another. It does not require an intent to permanently deprive. Although the Court hypothesized a situation in which the explanation could be material under a theory of implied consent from the owner of lost property, it found no such theory recognized under Indiana law. The Court concluded that a reasonable officer would not have known if the innocent explanation was material to probable cause and that Brown was therefore entitled to qualified immunity.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

TURNER v. THE SALOON (February 8, 2010)

Paul Turner was a waiter at The Saloon restaurant. After working there for several years, Turner and one of his supervisors carried on a sexual relationship that lasted for about nine months. According to Turner, the supervisor retaliated against him after she ended the relationship. He alleges that she changed his table assignments, disciplined him without cause, and sexually harassed him on a number of specific occasions. Turner also alleges that he was discriminated against because of his psoriasis. He wears no underwear as a result of that condition and therefore occasionally exposes himself while changing clothes. He claims that his supervisors failed to accommodate his condition. Instead, he was forced to change in a “vile” men’s room. One day, in the middle of a shift and with no other waiters on duty, Turner left the restaurant to run an errand. When he returned, he was fired. Turner sued the restaurant and several managers for gender and disability discrimination under Title VII and the Americans with Disabilities Act. He also made a claim for overtime. The court granted summary judgment to the defendants. Turner appeals.

In their opinion, Judges Manion, Rovner, and Sykes reversed and remanded in part in affirmed in part. The Court first addressed the Title VII sexual harassment claim. It concluded that the district court erred in not considering most of the alleged acts of harassment because they occurred outside the limitations period. Under the Supreme Court's decision in Morgan, whether an alleged act of harassment is considered by a court depends on whether the claim is for employment discrimination or for hostile work environment. In an employment discrimination claim, discrete acts outside the limitations period should not be considered. However, in a hostile work environment claim, all acts can be considered as long as one act contributing to the hostile environment took place during the limitations period. Taking all the alleged acts into account, the Court had little difficulty in finding that they were sufficient to survive summary judgment. The Court noted the presence of at least five discrete acts, three of which were aggressively physical. Since the district court did not reach the issue of employer liability, the Court left the issue for remand. The court next addressed Turner's claim that his termination was in retaliation for his complaints about the harassment. The Court concluded that Turner was unable to establish a prima facie case under either the direct or indirect method. It noted a series of at least ten serious reprimands in the eight or nine months preceding his termination as well as the fact that he left his job in the middle of the shift. The serious performance problems as well as the passage of time since his harassment complaint belie a causal connection between the complaint and his termination. The Court summarily rejected Turner's ADA discrimination claim -- his psoriasis is not a disability under the Act since it does not limit any major life activity. The fact that he is not disabled does not preclude his ADA retaliation claim. Since he did raise such a claim with his employer, his employer is not allowed to retaliate. He does not prevail on that claim, however, for the same reasons he could not prevail on his Title VII retaliation claim. Finally, the Court rejected Turner's wage claims as wholly unsupported by the evidence presented.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

REGET v. LA CROSSE (February 8, 2010)

John Reget has operated an auto restoration and body shop business in La Crosse, Wisconsin for several decades. For almost as long, he and the City have been at odds. In 1980, the City condemned his building and gave him the funds to relocate and remodel his current building. In the early 1990s, the City cited Reget a number of times for ordinance violations pertaining to junk dealers. All the citations were ultimately dismissed. In the mid-1990s, the City threatened to rezone the area of Reget's current building. The move would have forced Reget to relocate yet again. The City backed down -- but only after Reget promised to comply with the ordinances, build a fence, and limit his nighttime operations. Both sides claim the other failed to live up to its bargain. Reget filed a lawsuit alleging a violation of his Equal Protection rights as a result of the City's selective enforcement of its ordinances. The district court granted summary judgment to the City. Reget appeals.

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The Court noted that Reget's Equal Protection claim was of the class-of-one variety. For such a claim to prevail, a plaintiff must prove that he or she has been treated differently than others similarly situated and that no rational basis exists for such differentiation. The Court concluded that he failed to identify a similarly situated business with respect to any of his claims of discriminatory treatment.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

WISCONSIN ALUMNI RESEARCH FOUNDATION v. XENON PHARMACEUTICALS, INC. (January 5, 2010)
 

Scientists at the University of Wisconsin discovered that suppressing a certain enzyme in the body reduced cholesterol levels. They disclosed their discovery to the Wisconsin Alumni Research Foundation, which manages patents for the University. They assigned all their rights to the Foundation. Xenon Pharmaceuticals was very interested in the same effort. Xenon and the University entered into a series of agreements under which Xenon sponsored various research projects; Xenon and the Foundation entered into an agreement giving Xenon exclusive licensing rights in return for a percentage of fees received; and Xenon entered into a series of agreements directly with the individual researchers to undertake various projects. Xenon and the Foundation filed for and received a joint patent. The relationship soured. Xenon did some related work with a third party and with an individual University scientist with whom it had a consulting agreement. When it filed a patent application covering the results of that work, the Foundation objected. It also licensed the technology covered by both the joint patent and the related patent to Novartis. The Foundation demanded its contractual percentage -- Xenon refused. The Foundation brought suit, claiming that both the Novartis license and the related patent violated the party's agreement. Xenon counterclaimed. In a series of rulings, the court held that Xenon breached the agreement by granting the sublicense to Novartis and that Xenon owed licensing fees to the Foundation. The court refused the Foundation's request for a declaration that the work on the related patent belonged to it and concluded that the Foundation's argument that it had a right to terminate the contract was not developed sufficiently in its briefs. At trial on damages, the jury awarded $1 million, which was reduced on remittitur to $300,000. The parties cross-appealed.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Sykes affirmed in part, reversed in part and remanded. The Court first addressed Xenon's transfer to Novartis. The Court agreed with Xenon that each joint patent holder, under federal law, is allowed to use the patented technology without regard to the rights of the other. However, that right is subject to modification by agreement of the parties. Here, the Foundation conditioned Xenon's right to license the technology on its payment of a fee. Interpreting the terms of their agreement, the Court concluded that Xenon owed the contractual fee upon its receipt of its fee and its failure to remit it was a breach of the agreement. The Court then rejected Xenon's argument that the Foundation presented insufficient evidence to support its damages claim. With respect to the Foundation's right to terminate the agreement, the Court concluded that the lower court was in error when it held that the right to terminate was contingent upon a judicial finding of a breach. The agreement specifically gives the Foundation the right to terminate the agreement upon a breach by Xenon and a failure to remedy the breach within 90 days after written notice. The Foundation considered Xenon's conduct a breach and gave appropriate notice. Even though it filed suit prior to the expiration of the 90 days, it's right to terminate after a failure to cure remains. It need not await a judicial determination. The Court concluded that the Foundation properly terminated the agreement. Finally, the Court addressed the Foundation's claim for a declaration of its ownership of the related technology. The Court concluded that the contractual terms were clear and that the scientist's work, although partially sponsored by Xenon, was owned by the Foundation.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PATTERSON v. INDIANA NEWSPAPERS, INC. (December 8, 2009)

Lisa Coffey and James Patterson were both employees in the editorial department of The Indianapolis Star in 2003 when Dennis Ryerson was named editor. Both describe themselves as "traditional Christians" opposed to homosexuality on religious grounds. Both believe that Ryerson's opposing view was somehow responsible for their employment troubles. Neither, however, had particularly stellar employment records. Coffey regularly violated the newspaper's overtime rule. She ultimately left the newspaper when a restructuring left her with the choice of a part-time editorial job or a full-time copy-desk job -- when what she wanted was a full-time editorial job. Patterson's issues were more substantive. His writing was weak and he made frequent, serious mistakes. After many warnings, Patterson was fired. Coffey and Patterson brought suit. They both alleged violations of Title VII for discrimination on the basis of religion. Patterson also alleges age and race discrimination, in violation of Title VII and the Age Discrimination and Employment Act (ADEA), and retaliation for filing an EEOC complaint. Finally both plaintiffs include a claim for negligent infliction of emotional distress. The court granted summary judgment against both plaintiffs. Coffey and Patterson appeal.

In their opinion, Judges Cudahy, Flaum and Sykes affirmed. Although the Court noted the parties' sharply diverging views of the facts in some respects, it ultimately found no reason to resolve them. Both plaintiffs were required to establish that they met their employer's legitimate performance expectations and that they were treated less favorably than a similarly situated employee. With respect to Coffey, the Court concluded that she failed to establish her prima facie case. First, the evidence of her regular violation of the overtime policy was undisputed. Second, she failed to identify any similarly situated employee, much less one who was treated more favorably. Patterson suffered the same fate. All of his discrimination claims (religion, race, and age) and his retaliation claim require that he prove that he was meeting the newspaper's expectations. To the contrary, the record contains his long history of performance problems. Finally, the Court rejected the state law negligent infliction of emotional distress claims. Indiana law requires a "direct physical impact" to recover for emotional distress -- losing a job does not qualify.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CURIA v. NELSON (November 20, 2009)

Kenneth Nelson owned two car dealerships -- Auto Plaza and Auto Mall. In 1989, he and Richard Curia entered into an agreement whereby Curia agreed to pay $100,000 for 1000 (of 8180) shares in Auto Plaza and 144 (of 1200) shares in Auto Mall. The agreement also gave Curia three separate options to buy additional stock in both dealerships, up to 100% of each. Curia exercised the first of the options in 1990. A few years later, in 1993, Nelson and Curia modified the agreement, apparently because the total number of shares in the two companies had increased. The 1993 agreement also provided that Curia could purchase additional shares "upon those terms and conditions subsequently agreed upon." A later agreement terminated Curia's rights to acquire any additional Auto Mall stock. In 2005, however, Curia attempted to exercise his options to acquire all of the stock in Auto Plaza. Nelson filed a declaratory judgment action contesting Curia's right. Curia counterclaimed for breach of contract. The court granted summary judgment to Curia. Nelson appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The issue identified by the Court was whether Curia's 1989 options survived the 1993 modification. The Court noted that both Nelson and Curia argued that the 1993 agreement was unambiguous and supported his own interpretation. The parties, however, do not control whether a contract term is ambiguous. It is a question of law for the court. Here, the Court found the 1993 language reasonably susceptible to more than one meaning -- and therefore ambiguous. Both of the interpretations are reasonable readings of the contract language. The ambiguity must be resolved with reference to extrinsic evidence -- not on summary judgment.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SCHROCK v. LEARNING CURVE INTERNATIONAL (November 5, 2009)

Learning Curve International ("LCI"), a producer and distributor of toys, has a license to market toys based on the "Thomas & Friends" properties. It hired Daniel Schrock to take photographs of those toys for use in promotional materials. LCI paid Schrock more than $400,000 for his effort. Although LCI stopped using Schrock's services in 2003, it continued to use some of his photos. Schrock registered the photos for copyright protection in 2004 and brought an infringement action against LCI and LCI’s licensor. The district court granted summary judgment to the defendants. It ruled that Schrock needed LCI's permission to copyright the photos, which he did not have. Schrock appeals.

In their opinion, Judges Flaum, Williams and Sykes reversed and remanded. The Court first noted that the copying element of an infringement action was not disputed – only whether Schrock had a valid copyright. Then, the Court briefly discussed the subject of derivative works but ended up assuming without deciding that each photo qualified as a derivative work. Next, the Court concluded that the photos met the requisite threshold of originality for copyright protection. That threshold is rather low – and the Court specifically rejected LCI’s argument that the threshold is higher for derivative works. If photographs are distinguishable from the underlying works, they qualify for derivative-work copyright. Schrock’s are and therefore do. In order to be copyrightable, a derivative work must itself not be infringing – that is, the owner of the copyright in the underlying work must have given permission to make the derivative work. The owner need not, however, have given actual permission to copyright the derivative work. The Court specifically rejected dicta in Gracen that suggested otherwise. Although Schrock’s right to copyright his work therefore arises by operation of law without the need for permission, Schrock is entitled to contract away his rights. The Court concluded that the record was insufficient to determine the merits of defendants’ arguments that he did just that. It remanded for further development of the record.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

AUTO-OWNERS INSURANCE CO. v. WEBSOLV COMPUTING (September 1, 2009)

Websolv sent an unsolicited fax to the dental office of Guy Bibbs. The fax was an advertisement for a healthcare seminar. Bibbs sued Websolv in state court. Websolv tendered its defense to Auto-Owners Insurance Co. Auto-Owners filed an action in federal court seeking a declaratory judgment that it had no duty to defend. Although the parties stipulated to the application of Iowa law, the court applied Illinois law and granted Websolv’s motion for summary judgment. Auto-Owners appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Sykes reversed and remanded. The Court first addressed the choice-of-law issue. The Court concluded that the district court should have honored the parties' stipulation that Iowa law controls. When the parties agree on which state's law should govern and that choice is reasonable, the court should apply that law. The lower court was incorrect in its belief that it was required to apply the law of the forum. The court is only required to apply the choice-of-law rules of the forum -- in order to determine which forum’s law is the correct substantive law. Here, under Illinois' choice-of-law rules, Iowa law would apply. The Court turned to the merits, applying Iowa law. The claim in the case is that Websolv violated the Telephone Consumer Protection Act (“TCPA”) by sending the unsolicited fax. Websolv claims the suit is covered either under the policy's advertising injury section or its property damage section. The Court rejected both theories. The advertising injury section requires the company to defend its insureds for suits alleging injury from the publication of material that "violates a person's right of privacy." Recognizing that a right of privacy could refer either to matters of secrecy or matters of seclusion, the Court concluded that an Iowa court would apply the policy’s coverage only in the secrecy context. The rights protected by the TCPA, on the other hand, are privacy rights arising in the seclusion context. The Court relied, in part, on the use of the word "publication" in the policy. Publication is more relevant in the secrecy context than the seclusion context. With respect to the property damage theories, the Court noted that the only alleged property damage was the use of ink and paper from the fax machine. The Court held that this damage fell within the exclusion in the policy for "expected or intended" consequences. Websolv certainly expected its fax transmission to result in the use of ink and paper on the recipient’s end.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LOVE v. NATIONAL CITY CORPORATION WELFARE BENEFITS PLAN (July 23, 2009)

Nancy Love had worked at National City for over twenty years when she was diagnosed with multiple sclerosis. After almost 3 years of receiving long-term disability benefits, the Plan told her she no longer fit their definition of "disabled." The controlling definition, after two years of long-term disability, is that a claimant must not be able to perform any job for which she is or could be qualified. The Plan's assessment concluded that, although she probably suffered from multiple sclerosis, she had never suffered an attack nor exhibited clinical signs. Love appealed the determination. She supported her appeal with several medical reports concluding that she had limited functional ability. The Plan denied her appeal, citing its doctor's conclusion that Love was able to do certain simple jobs. Love sued the Plan under ERISA. The district court granted summary judgment to the Plan. Love appeals.

In their opinion, Judges Ripple, Evans and Sykes reversed and remanded. The court stated that ERISA requires a plan to set forth its specific reasons for any denial of benefits. Love's medical file and her appeal contained multiple medical reports questioning for functional capacity. In fact, each of Love's treating physicians concluded that she was unable to work for more than a few hours a day. The Court noted that neither the initial termination letter nor the letter denying her appeal explained the Plan's reasons for discrediting the reports. The Court concluded that the Plan acted arbitrarily by denying benefits without an adequate explanation. The Court declined, however, to order reinstatement of benefits. Instead, it remanded to the district court with instructions to remand to the Plan Administrator for further proceedings.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

IN RE: MARCHFIRST (July 17, 2009)

When MarchFIRST filed for Chapter 7 bankruptcy, it sent a notice to its creditors. The notice stated that the original of a proof of claim had to be received by 4 p.m. on October 11. It also provided that the proof of claim could be submitted by hand or by mail. Avnet, a MarchFIRST creditor, faxed its proof of claim. The claims agent received the fax at 4:43 p.m. on October 11. The original of the claim was delivered the following morning. The trustee treated the original as the claim and objected to it on the grounds that it was not received until October 12. The bankruptcy court sustained the trustee's objection -- the district court affirmed. Avnet appeals.

In their opinion, Judges Ripple, Evans and Sykes affirmed. The Court concluded: a) transmission of a proof of claim by facsimile is improper when the notice clearly states that the original must be submitted and that submissions can be made by hand or mail, b) Rule 5005 (c) of the Federal Rules of Bankruptcy Procedure applies only when a document is sent to the wrong recipient, not when it is sent by the wrong method, and c) in any event, the facsimile itself was untimely.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GLASER v. WOUND CARE CONSULTANTS, INC. (July 2, 2009)
 

Carol Glaser is a Medicaid recipient with some serious medical problems. She started receiving care at Wound Care Consultants, Inc. in 2002. At some point, an attorney contacted her and advised her that Wound Care may have submitted improper billing to Medicaid. Glaser filed a qui tam action under the False Claims Act in April of 2005. However, several months before she filed, a routine audit led the Centers for Medicare & Medicaid Services ("CMS") to begin an investigation of Wound Care. Glaser and her attorney stated that they were unaware of the CMS investigation. Nevertheless, the district court dismissed the action on the ground that it was based upon a public disclosure and that Glaser was not an “original source.” Glaser appeals.

In their opinion, Judges Cudahy, Kanne and Sykes affirmed. The Court described the essence of the False Claims Act. The Act prohibits false payment claims to the government. It allows private citizens to file actions on the government’s behalf and receive a substantial share of the recovery, if successful. Qui tam actions, as they are called, are barred if the action is “based upon the public disclosure” of allegations unless the person is an “original source.” This jurisdictional bar necessitates a three-part inquiry: a) whether the allegations have been publicly disclosed, b) if so, whether the action is based upon the disclosure, and c) if so, whether the person is an original source. The Court applied the test to the facts. Public disclosure is satisfied when, as here, the very agency responsible for investigating claims of abuse has started an investigation before the action was filed. The fact of the investigation need not be widely known. With respect to the second prong, the Court noted its earlier precedent that held that “based upon” meant that the allegations actually depended on and were derived from the publicly disclosed information. However, the Court recognized that eight other circuits apply a different test -- an allegation is "based upon" publicly disclosed information when the allegations are substantially similar. The Court conceded the merits of the majority position. Although its construction of the statute is consistent with the plain language doctrine, the Court recognized that its position made the third prong of the test -- original source -- superfluous. In doing so, the Court overruled Bank of Farmington and Caremark. Applying their new standard, the Court concluded that Glaser's allegations were not only substantially similar, but were nearly identical, to those of CMS. Finally, with respect to the third prong of the test, the Court held that Glaser was not an "original source" of the information contained in her action. The Court principally relied on the fact that Glaser knew of the fraudulent conduct only through her attorney but asserted the attorney-client privilege to prevent disclosure of how she learned the information. Thus, she did not meet the burden of proving that she had independent knowledge of the fraud.

• Email This
• Print
• Comments
• Trackbacks
• Qui Tam Jurisdictional Bar Is Satisfied When The Relator's Allegations Are Substantially Similar To The Publicly Disclosed Allegations">Share Link

EBERTS v. GODERSTAD (June 29, 2009)

The Goderstads sold their large, vintage Wisconsin home to the Ebertses for $1.85 million. Within months of their occupancy, they began to notice significant defects. The Ebertses brought a seven count complaint in the district court. American Family Mutual Insurance Company, the Goderstad’s insurer, reserved its rights, appointed counsel, and moved to intervene to protect its interests. The district court concluded that none of the claims were covered under any of the Goderstad’s policies. It granted summary judgment to American Family and certified its judgment under Rule 54 (b). The Goderstads appeal.

In their opinion, Judges Ripple, Williams and Sykes affirmed. The Court noted that American Family has a duty to defend if the allegations of the complaint raise the possibility of coverage. The Goderstads have four policies, each of which insures against “property damage” caused by an “occurrence,” an “occurrence” being defined as an “accident.” On appeal, the Goderstads argue that two of the allegations of the Ebertses’ complaint trigger coverage – fraudulent misrepresentation and negligent misrepresentation. The Court looked to the Stuart case in Wisconsin, which had been decided by the court of appeals shortly after the district court ruled and decided by The Wisconsin Supreme Court shortly after oral argument in the Seventh Circuit. The unanimous decision in Stuart effectively disposed of the Goderstad’s argument with respect to fraudulent misrepresentation. The court reversed the court of appeals and held that a fraudulent misrepresentation claim by definition has a degree of volition inconsistent with “accident.” With respect to negligent misrepresentation, the Court blocked both avenues attempted by the Goderstads. First, the Court held that Wisconsin law predating and unaffected by Stuart held that negligent misrepresentation was not covered by a policy insuring against an “accident.” Next, the Court held that the Goderstad’s attempts to get around that principle by arguing that theirs was a non-disclosure claim failed because Wisconsin does not recognize such a tort. Finally, the Court noted that the Goderstads suffered no “property damage” as defined in the policy and was not entitled to a defense for that reason as well.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LUCTERHAND v. GRANITE MICROSYSTEMS, INC. (April 28, 2009)

Mark Lucterhand was the Director of Global Operations for Granite Microsystems, Inc. (GMI). In late 2004, he fell and seriously injured his leg while at work. Daniel Armbrust, GMI's president, witnessed the accident but nevertheless forced Lucterhand to attend a scheduled business meeting. When finally allowed to do so, Lucterhand went to the hospital, had surgery and spent several days recovering. Armbrust fired Lucterhand a few days after he returned to work. Lucterhand sued GMI and Armbrust for intentionally terminating his employment in retaliation for exercising his FMLA rights. He also brought state law claims for false imprisonment and intentional infliction of emotional distress. Federal Insurance Company and Vigilant Insurance Company insured GMI under a variety of policies.. GMI tendered the lawsuit. The insurance companies refused the tender, intervened in the lawsuit, and sought and received a declaratory judgment that there was no coverage. GMI appeals.

In their opinion, Judges Ripple, Sykes and Tinder affirmed. Wisconsin law, which governs the suit, requires an insurer to defend an insured if the allegations of the complaint raise the possibility of coverage. The Court examined the allegations of the complaint to make that determination. The complaint contained allegations of intentional conduct -- that GMI intentionally terminated Lucterhand and that it intentionally inflicted emotional distress and falsely imprisoned him. Insurance policies generally do not cover losses that are the result of intentional conduct. Here, the policies cover losses incurred only as the result of an “accident." The Court recognized the debate between courts that hold that an act is an "accident" if the resulting damage is unintentional and courts that hold that an unintended consequence is irrelevant if the act itself was intentional. In fact, the Wisconsin Supreme Court issued two opinions recently on the issue. Although the decisions produced many different opinions and left some unresolved issues, the Court concluded that they provided enough guidance to resolve the case. The complaint alleges both the intent to act and an intent to harm. As such, the losses are not accidental and, under Wisconsin law, the insurance companies have no obligation to defend.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

NAUTILUS INSURANCE CO. v. 1452-4 N. MILWAUKEE AVENUE, LLC (April 7, 2009)

1452-4 N. Milwaukee Avenue, LLC ("1452") was the owner of the property at that address in Chicago. 1452 had a comprehensive general liability insurance policy issued by Nautilus Insurance Co. ("Nautilus"). The policy contained an exclusion for property damage arising out of operations performed by contractors or subcontractors. When 1452 was sued by the owner and insurer of the property next door for damages allegedly caused by its contractor’s negligent excavation, 1452 tendered the action to Nautilus. Nautilus brought an action seeking a declaratory judgment that it had no duty to defend or indemnify 1452 in the underlying lawsuit, relying on the exclusion. The court rejected Nautilus' argument and entered a declaration that Nautilus had a duty to defend. Nautilus appeals.

In their opinion, Judges Ripple, Sykes and Tinder reversed and remanded. The Court identified the issue as whether the damages alleged in the underlying complaint fall or potentially fall within the policy’s coverage. The Court noted that the lower court did not apply the contractor exclusion because of an allegation in the complaint that 1452 itself was directly liable because it failed to provide statutorily required notice of excavation to the neighbor. The Court disagreed with the lower court’s analysis. The Court emphasized that the notice claim sought recovery for the same loss as the other claims. Relying on Illinois jurisprudence, the Court concluded that, because the property damage alleged in the complaint falls within the policy exclusion, the alternative theory of relief does not trigger coverage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FMS, INC. v. VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, INCORPORATED (March 4, 2009)

In 1997, FMS and Samsung entered into a dealer agreement under which FMS was authorized to sell Samsung construction equipment in Maine. The next year, Samsung sold its construction equipment business to Volvo. Volvo acquired the division, the factory, the design, and the franchise relationships -- but not the name. It was only authorized to sell under the Samsung name for three years. Volvo did manufacture and sell equipment under the Samsung name. In short order, however, it redesigned the equipment and rebranded it with the Volvo name. It then terminated the agreements with most of the Samsung dealers. FMS and other dealers brought an action against Volvo, alleging a breach of contract and wrongful termination. The District Court granted summary judgment to Volvo. On appeal, the Seventh Circuit affirmed in large part but reversed with respect to FMS's Maine franchise law claim. The Court held that there was a genuine factual dispute about whether Volvo had "good cause" under the Maine statute to terminate the franchise. On remand, a jury found for FMS. Volvo appeals.

In their opinion, Judges Flaum, Rovner and Sykes reversed and remanded. The court first considered the Maine franchise law. That law requires "good cause" for a manufacturer to terminate a franchisee. A manufacture’s discontinuation of the production of the franchise goods constitutes good cause under the statute. Volvo argued that it's redesign and rebranding of the equipment constituted a discontinuation of the franchise goods. The Court turned its analysis to the statutory definition of “franchise goods.” It found that the definition centered on the grant of a license to use a trademark or trade name. Considering that definition in conjunction with the dealer agreement, which defined the target of the franchise to be “all Samsung construction equipment,” the Court concluded that the contract only covered equipment that was branded Samsung. The Court then addressed whether the contractual inclusion of "later improved or superseding models" in its definition of “product” was enough to include the Volvo equipment. The Court cited the contract interpretation principle that when a contract refers to items “including” other items, the latter must be a subset of the former. It therefore concluded that that phrase included only later models that were branded Samsung. Concluding that the franchise covered only Samsung branded equipment, the Court had little difficulty in finding that Volvo met the good cause requirement when it discontinued the production of Samsung-branded equipment. Volvo is therefore not liable for improper termination under the Maine franchise statute and was entitled to summary judgment in its favor.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LINDQUIST FORD v. MIDDLETON MOTORS (February 25, 2009)

The Hudson brothers owned and operated Middleton Motors, Inc. (“Middleton”), a Ford dealership. The company was experiencing significant financial difficulties and sought assistance from Lindquist Ford, a dealership in a neighboring state. They discussed the possibility that Craig Miller, Lindquist’s manager, could help manage the operation. They also discussed the possibility of a cash infusion from Lindquist. In April 2003, the parties agreed that Miller would begin working at Middleton on a part-time basis and, in fact, he began working at Middleton on April 21. The parties had not yet reached an agreement although there was an understanding that Miller’s compensation would be based on net profits. Further discussions continued regarding a cash infusion by Lindquist and an understanding of Miller’s compensation but an agreement was never reached. Middleton fired Miller almost a year after he started – without any compensation having been paid or any cash infusion by Lindquist. Lindquist brought an action for quantum meruit and unjust enrichment. After a bench trial, the court found for Lindquist on both counts and awarded $152,332 in damages. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder reversed and remanded. The Court first noted some confusion in Wisconsin case law on unjust enrichment and quantum meruit and reviewed the fundamentals of the claims. Both quantum meruit and unjust enrichment are quasi-contractual remedies applicable only when there is no enforceable contract. Both are governed by equitable principles in Wisconsin. The elements of unjust enrichment are: a) a benefit to the defendant by the plaintiff, b) appreciation by the defendant of the benefit, and c) retention of the benefit where it would be inequitable to retain it without payment. The measure of damages is the value of the benefit. Quantum meruit, on the other hand, does not require a benefit to be conferred on the defendant and damages are determined by the reasonable value of plaintiff’s services. Its elements are: a) proof that the defendant asked for the services of plaintiff, and b) proof that plaintiff reasonably expected compensation. The Court also discussed the Wisconsin case law regarding implied-in-fact contracts, which are different from quantum meruit and unjust enrichment, because it believed the trial court’s confusion stemmed from it. With respect to the quantum meruit claim, the Court concluded that the district court improperly relied on Wisconsin implied-in-fact contract principles. For example, the court excluded evidence of the contract negotiations, deeming them irrelevant because it was not a contract case. The Court disagreed, holding that, although not a contract case, evidence of the negotiations was relevant to the reasonable expectations of the plaintiff. With respect to the unjust enrichment claim, the lower court did properly identify the elements of the claim but the Court determined that it misapplied the equity element. The lower court looked only at the fact that Miller worked for eleven months without pay. The Court concluded that the inquiry should be much broader – the parties had significant negotiations about their expectations for Miller’s compensation and the need for a cash infusion. Again, much of the relevant evidence was disallowed by the court.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GOLDEN YEARS HOMESTEAD v. BUCKLAND (February 19, 2009)

Golden Years Homestead, Inc. (“Golden Years”) operates a nursing facility in Fort Wayne, Indiana. In early 2000, the Indiana Department of Health (“IDH”) conducted an annual certification inspection, as required by Golden Years’ participation in the Medicaid program. The inspection took place over a span of ten days. At some point during the inspection, the inspection team became upset with the conduct of the Golden Years’ team. From then on, the inspection team became loud, overly critical, hostile and accusatory. The team left information favorable to Golden Years out of its report. Golden Years was cited for seventeen violations. After a six-day evidentiary hearing and administrative appeals, all but one of the citations was reversed. Golden Years brought a lawsuit against the inspectors under 42 U.S.C. § 1983 for constitutional violations and state law claims for abuse of process and malicious prosecution. The district court granted summary judgment for the inspectors. Golden Years appeals the dismissal of the state law claims.

In their opinion, Judges Bauer, Rovner and Sykes affirmed. The Court first addressed Golden Years’s complaint that the court dismissed the state law claims sua sponte. The Court disagreed. Although the inspectors did not specifically address the state law issues in their motion, they did ask for all counts to be dismissed. Furthermore, Golden Years actually addressed the state law counts in its response. The lower court acknowledged the general rule that a court will decline to exercise jurisdiction over state law claims if all federal claims are dismissed before trial. The Court approved the lower court’s invocation of the exception to the rule when the state law claims are meritless. On the substance of the malicious prosecution claim, the Court stated that Golden Years was required to prove malice. Although it seemed to accept that the inspectors’ conduct was overzealous and unprofessional, the Court concluded that the evidence did not support personal animosity or malice. Similarly, the Court concluded that the evidence of hostility and rancor was insufficient to establish the ulterior motive requirement for abuse of process.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FIRST STATE BANK OF MONTICELLO v. OHIO CASUALTY INSURANCE CO. (February 5, 2009)

James Stilwell was an entrepreneur and property owner in central Illinois. Stilwell found himself at times in need of cash, however. He devised a scheme whereby he would write a check on his account at Tuscola National Bank (“TNB”) and present it to First State Bank of Monticello (“FSB”) in return for a bank money order. Stilwell frequently had no money in his account at TNB. Even though cashing a check for a noncustomer was against FSB’s policy, it sold him almost $2 million in money orders over the course of several months. When questioned by bank representatives, Stilwell made up stories to cover his scheme. Finally, TNB froze his account, leaving FSB with $307,000 in worthless checks. Stilwell agreed to repay FSB, but died before he did. FSB filed a claim with its insurer, Ohio Casualty Insurance Company (“Ohio Casualty”). Ohio Casualty denied the claim on two grounds: that the loss was not covered under the policy and that it was an excluded loss because it was caused by a FSB employee. FSB filed suit to recover. The district court granted summary judgment to FSB. FSB requested prejudgment interest in a Rule 59(e) motion. The court declined. Both Ohio Casualty and FSB appeal.

In their opinion, Judges Wood, Sykes and Tinder affirmed. The Court first addressed Ohio Casualty’s argument that FSB did not suffer a “loss . . . resulting directly from . . . false pretenses . . . committed . . . on the premises” as required by the policy. It first rejected the argument that FSB suffered no loss because it received Stilwell’s check. A loss is a depletion of funds. The fact that the loss did not occur at the moment of the presentment is of no consequence. Next, the Court rejected the argument that the loss did not directly result from Stilwell’s conduct. The Court distinguished between tort principles of causation and contract interpretation principles in determining “direct” cause. The Court recognized that some courts refer to tort principles of causation but that Illinois applies contract principles to determine policy coverage. Here, given the plain meaning of “direct,” FSB’s loss was a direct result of Stilwell’s conduct. Finally, the Court addressed and rejected Ohio Casualty’s argument that a policy exception for loss “caused by an Employee” applied to FSB’s loss. The Court concluded that losses that an employee failed to prevent were not included in the definition of losses “caused” by an employee.

On FSB’s cross-appeal, the Court quickly dispensed of the prejudgment interest issue. FSB requested prejudgment interest for the first time in its Rule 59(e) motion. The district court was entitled to consider it untimely.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

STILWELL v. AMERICAN GENERAL LIFE INSURANCE COMPANY (February 5, 2009)

James Stilwell took out a $4 million life insurance policy with American General Life Insurance Company (“American General”). His wife and daughters were the beneficiaries. The policy allowed assignments but provided that no assignment would bind American General unless filed and recorded by American General. In 1999, in order to guarantee financing for his business, Stilwell made two assignments of the policy, each in the amount of $2 million, to Janko Financial Group. The next year, Janko assigned its rights to Tuscola, a related company created by Janko to handle the financing. Tuscola entered into a new agreement with Stilwell and reduced one $2 million guarantee to $1.25 million. Janko notified American General of the assignment on a form created in part by Stilwell’s agent and modified by Janko. American General received the form but recorded it as a release instead of an assignment. Mrs. Stilwell executed additional assignments to Tuscola in the amount of $250,000 and First Mid-Illinois Bank in the amount of $1 million. James died in 2003, owing Tuscola and the Bank (mostly Tuscola) $512,000. Tuscola and the Bank applied to American General for payment, referencing the $3.25 million in assignments. American General originally indicated that it had a record of the release of the two assignments in 1999. After Janko explained the reason for the form, American General reversed its position and paid the claim. American General paid other claims and remitted the balance to Mrs. Stilwell and her children. Mrs. Stilwell brought this action against American General, alleging that it overpaid Tuscola. She alleged that the 1999 assignments were released and the 2000 assignment to Tuscola was only $250,000. The district court granted summary judgment to American General. Mrs. Stilwell appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Sykes affirmed. The Court first summarily rejected Mrs. Stilwell’s argument that Tuscola’s joint claim with the Bank somehow amounted to a concession that its individual protection was insufficient to cover its claim. Given the language of the assignment, the Court found that the joint application made perfect sense. The Court then addressed Mrs. Stilwell’s principal argument that the assignment from Janko to Tuscola was invalid. The Court rejected both grounds for the argument. First, Mrs. Stilwell argues that the assignment was invalid because the debt was transferred before the notice to American General. The Court held that the assignment was complete upon the finalization of the agreement to transfer Janko’s interest in the policy. Second, Mrs. Stilwell argues that the assignment was invalid because the notice to American General was invalid. The Court held that the validity of the assignment did not depend on the sufficiency of the notice. The provision in the policy that notice must be given in order for an assignment to be binding on American General is for the benefit of American General. Only American General can object to the insufficiency of the notice.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

UNITED STATES v. LIGAS   December 1, 2008

Lawrence Ligas owed the government over $300,000 in taxes, penalties, and interest. Federal tax liens attached to his property. The United States brought an action in February 2004, just prior to the expiration of the statute of limitations. Ligas received a copy of the summons and complaint by mail but did not waive personal service. Between February of 2004 and February of 2005, the government failed to serve Ligas properly. In March, the court granted the government’s fourth request for an extension and permitted service by posting the summons and complaint on the door of Ligas’ home, by mailing copies to his home by certified mail, and by faxing copies to a fax number listed on Ligas’ pro se appearance form. On Ligas’ motion, the district court vacated its March order and dismissed the complaint for failure to serve Ligas. The court determined that the government had not been diligent in its service attempts and was not entitled to the fourth extension. The court relied on two facts – that Ligas’ co-defendant (the bank holding a mortgage on his property) had successfully served Ligas and that the government could not provide evidence of its pre-2005 attempts to serve Ligas. On the same day, Ligas sought to have the tax liens quashed. The government responded by asking for reconsideration of the court’s dismissal, arguing that Ligas had submitted to personal jurisdiction and waived objection to service by appearing to quash the liens. The court agreed. It reinstated the complaint and eventually granted summary judgment to the government. Ligas appeals.

In their opinion, Judges Bauer, Evans and Sykes reversed and remanded. The Court recited the general rules that a defendant must be served through one of the methods listed in FRCP 4, that a person must normally be served within 120 days but an extension may be granted, and that a complaint must be dismissed if it is not served within the allowed time. The Court concluded that the district court had correctly dismissed the complaint for the government’s failure to serve Ligas. The Court disagreed with the district court’s assessment of the impact of Ligas’ request to quash the tax liens. The Court stated that a defendant’s assertion of a right to affirmative relief does not generally waive an objection to jurisdiction. The affirmative relief can be unrelated to the jurisdiction issue (such as a counterclaim) or related to the jurisdictional issue (such as here, where the enforceability of the tax lien depended on the success of the jurisdiction argument). The fact that Ligas had other methods available to attack the liens did not change the Court’s view of the impact of his appearance. The Court also concluded that Ligas’ participation in the proceedings after the court’s reinstatement did not act as a waiver of his jurisdiction objection.

Judge Evans dissented from the panel’s opinion. Judge Evans emphasized that the court’s dismissal had been without prejudice. The government could refile and attempt service anew. He recognized that even the government itself thought there were serious statute of limitations barriers to a new complaint. But the barriers were not established as fact. The government could refile and put Ligas to the burden of establishing the defense. Since extinguishing the liens did not necessarily follow from the dismissal, Judge Evans believed that the district court did not abuse its discretion in reinstating the complaint. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MCKINNEY v. CADLEWAY PROPERTIES, INC. (November 13, 2008)

Versia McKinney’s sewer backed up in her Chicago home in 1996 and caused substantial damage. McKinney took out a disaster assistance loan of $5200 from the Small Business Administration (“SBA”). At some point, McKinney stopped making payments on the loan. The SBA sold the loan. It eventually was sold to Cadleway Properties, Inc. (“Cadleway”). Cadleway sent McKinney a letter in September 2004. The letter informed McKinney that Cadleway had purchased the debt and that McKinney should make payments to Cadleway. The back of the letter contained a “Validation of Debt Notice” intended to comply with the Fair Debt Collection Practices Act (the “Act”). The notice stated that: a) McKinney owed $4,370.02, b) McKinney had 30 days to tell Cadleway that she disputed the debt, and c) Cadleway would assume the debt was valid if McKinney did not so dispute. At the bottom of the form, McKinney was asked to confirm the amount of the balance as stated by Cadleway or to state what she believed to be the correct balance. McKinney filed an action against Cadleway alleging that the notice letter violated the Act. She only sought statutory damages and attorney’s fees. The court below held that: a) the obligation was a “debt” under the Act, b) Cadleway was a “debt collector” under the Act, and c) the notice letter was confusing on its face to an unsophisticated consumer and therefore in violation of the Act. The court granted summary judgment to McKinney. Cadleway appeals.

In their opinion, Judges Manion (concurring in part and concurring in the judgment), Rovner (concurring in part, dissenting in part), and Sykes reversed and remanded. The Court stated that the purpose of the Act was to protect consumers from deceptive and unfair debt collection practices. It applies only to “debt collectors,” as that term is defined in the Act. The substantive section relevant to McKinney’s complaint is the requirement that a debt collector notify a consumer of her right to dispute the validity of, and receive a verification of, the debt. The Court first addressed Cadleway’s status as a “debt collector.” The majority on that issue (Sykes and Rovner) relied on the language of the Act and the Court’s prior decision in Schlosser to hold that Cadleway was a debt collector. The Court stated that the terms “debt collector” and “creditor” in the Act are mutually exclusive. The determinative factor in deciding which term applies to Cadleway is whether the debt was in default at the time Cadleway acquired it. Since McKinney’s debt was in default, Cadleway was a debt collector. With respect to the notice, the majority on that issue (Sykes and Manion) stated that the Act requires the debt collector to provide an initial communication with certain disclosures to the consumer. The Act requires no particular form but the disclosures must not be confusing to the “unsophisticated consumer.” Normally, the majority noted, the plaintiff would bring forth evidence of confusion. Here, McKinney introduced no extrinsic evidence of confusion. In fact, McKinney testified that she herself was not confused by the notice. The majority conceded that a notice letter could be so clearly confusing on its face that summary judgment could be granted. However, it did not believe that McKinney’s notice was such a case. The Court specifically addressed the balance confirmation request that the district court had found to be confusing. The majority found the notice to be clear. It simply asked McKinney to confirm the amount of the debt or dispute it. The notice complied with the Act. The Court remanded with instructions to enter judgment for Cadleway.

Judge Manion concurred in part and concurred in the judgment. Judge Manion agreed with the Court’s opinion on the validity of the notice letter. He noted that, given the outcome on that issue, the Court need not have resolved the “debt collector” issue. Having done so, however, Judge Manion wrote to express his disagreement with the resolution of that issue. The exclusionary language in the definition of “creditor” and the definition of “debt collector” in the Act refer to a person who collects a debt “for another” or “due another,” respectively. Cadleway was not collecting the debt for another. Cadleway purchased the debt and was collecting it for its own account. Judge Manion conceded that Schlosser held that the person holding the debt was a “debt collector” in similar circumstances. He pointed out, however, that the issue of collecting for another never came up. Judge Manion would not have been found Cadleway to be a “debt collector.”

Judge Rovner also wrote separately, concurring in part and dissenting in part. Judge Rovner concurred with the majority’s resolution of the “debt collector” issue without additional comment. She disagreed with the resolution of the validity of the notice letter, however. Judge Rovner found the letter “clearly confusing” on its face. She focused solely on the balance confirmation request section. Judge Rovner found the paragraph confusing, particularly to a consumer who may believe she owes something but has no records or other way of computing a different amount. The letter implies that the confirmation is obligatory, and also implies that failure to do so will damage one’s credit rating. Under the terms of the Act, the creditor can simply respond that she disputes the debt collector’s proffered total. Judge Rovner found the letter different from, and at least to some degree contrary to, the terms of the Act and therefore a violation of the Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CHOOSE LIFE ILLINOIS, INC. v. WHITE (November 7, 2008)

The State of Illinois offers a wide array of license plates that, in addition to an identifying combination of numbers and letters, contain a message or symbol. A vehicle owner can, for example, purchase plates that identify her alma mater, favorite charity, civic organization, or social cause. The Illinois legislature, with irrelevant exceptions, has authorized each specialty plate by statute. Some part of the proceeds from the sale of the plates typically goes to the organization whose message appears on the plate. Choose Life, Inc. (“CLI”) is a not-for-profit company. Its mission is to promote adoptions. CLI collected more than 25,000 signatures from prospective purchasers of a plate bearing the words “Choose Life.” It applied to the Secretary of State (the “Secretary”) for the issuance of the plate. When told by the Secretary that he would not issue a plate without authorizing legislation from the legislature, CLI embarked on a several-year-long unsuccessful campaign to get the legislature to authorize the plate. CLI brought suit against the Secretary alleging a violation of its First Amendment free-speech rights. The court below held that the Secretary did not need legislation, that the program created a private speech forum, and the Secretary’s refusal to issue the “Choose Life” plate was unlawful viewpoint discrimination. The court granted summary judgment to CLI and ordered the Secretary to issue the plates. The Secretary appeals. Pending appeal, the legislature amended the statute to explicitly require legislative approval before a specialty plate could be issued.

In their opinion, Judges Manion (concurring), Evans, and Sykes reversed and remanded. The Court first cursorily dealt with several preliminary issues. In a footnote, the Court recognized a split in the circuits over jurisdiction of specialty license plate cases on both standing and Tax Injunction Act bases. The Court found sufficient allegations of injury to support standing and sided with those circuits that held the Tax Injunction Act did not apply. In another footnote, it dismissed CLI’s argument that the program was facially unconstitutional. The Court held that a legislature need not – indeed, cannot – adopt standards that would control future legislatures. Lastly, the Court held that it would apply the amended statute. Particularly when a party seeks only prospective relief, a court will apply the law as it exists at the time of the appeal.

The Court also recognized a split in the circuits on the next step of its analysis – whether the speech is government speech, private speech, or a hybrid. It noted the Fourth Circuit’s Sons of Confederate Veterans and Rose cases in which that court held that specialty plates gave rise to private or a mixture of private and government speech. That court relied mostly on the facts that the state exercised little editorial control and the vehicle owners were the real speakers. The Court contrasted the Fourth Circuit cases to the later Sixth Circuit decision in Bredesen and the Ninth Circuit decision in Stanton. Relying on an intervening Supreme Court decision in a different speech context and Tennessee’s “total government control” over the design and message of the specialty plate, the Sixth Circuit held that the speech was government speech. The Ninth Circuit rejected the Sixth Circuit’s approach and its reading of the Supreme Court case. It agreed with the Fourth Circuit and held that specialty license plates are not government speech, but must be treated and analyzed as private speech. The Court believed the Fourth and Ninth Circuit approach to be the better one and adopted it. Although the state has approved the message, the most obvious speakers are the vehicle owners who choose to display it.

Having identified the speech as private, the Court proceeded to a forum analysis. Speech restrictions in a traditional or designated public forum come under strict scrutiny. Restrictions on speech in non-public fora, on the other hand, must merely avoid discriminating against certain viewpoints and “be reasonable in light of the forum’s purpose.” The Court concluded that license plates are neither traditional nor designated public fora. They are principally used to identify vehicles and serve only as expressions of ideas in a very limited context. They should be judged as speech in a non-public forum. Here, Illinois excluded all specialty plates on the subject of abortion. The Court held that this was not a discrimination based on viewpoint, but one based on content, and thus permissible. Finally, the Court had “no trouble” finding the restriction reasonable. Even though not government speech, the message on a license plate is closely associated with the state. The Court found it reasonable for a state to decide to maintain a neutral position on a subject like abortion.

Judge Manion concurred in order to raise three points. First, he took issue with the basis for the majority’s conclusion that Illinois entirely excluded the subject of abortion from its program. The only decision evident in the record was the state’s decision not to allow the “Choose Life” plate at issue. Second, he disagreed that the message of CLI and the “Choose Life” plate was pro-life. He viewed it as a “broader middle ground” that did not take a position on the legality of abortion but merely supported more adoptions as an alternative to abortion. Third, he noted his belief that a state could approve a “Choose Life” message and reject abortion-related plates and yet remain viewpoint neutral.
 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LASKOWSKI v. SPELLINGS  (October 14, 2008)

In 1999, Congress appropriated $500,000 to the Department of Education (“DOE”) for a grant to the University of Notre Dame to support a teacher quality program. Notre Dame applied for the grant, indicating that the money would support its Alliance for Catholic Education (“ACE”) program. ACE places and trains teachers in Catholic schools in poor neighborhoods. DOE awarded the grant. Laskowski and Cook, two federal taxpayers, sued the Secretary of the DOE, alleging that the appropriation violated the Establishment Clause. The plaintiffs sought to enjoin the award of the money but did not seek preliminary injunctive relief. Notre Dame intervened. By the time the court heard the case, the DOE had already paid the full amount of the grant to Notre Dame. The court dismissed the case as moot. The plaintiffs appealed, conceding their request for injunctive relief was moot but contending that other remedies were available. The Seventh Circuit panel agreed that the court could not order the DOE to attempt to recover the money from Notre Dame but split on whether the court could order Notre Dame to repay the disbursed funds, if the appropriation violated the Establishment Clause. The majority reversed the dismissal, holding that it could so order. The United States Supreme Court granted certiorari, vacated the judgment, and remanded for reconsideration in light of their decision in Hein v. Freedom From Religion Found.

In their opinion, Judges Posner, Evans, and Sykes affirmed. The only issue facing the Court was whether the plaintiff taxpayers had standing to seek restitution of the grant money from Notre Dame to the U.S. Treasury. The panel began with the general standing rule that payment of taxes is a very generalized interest and usually not enough to establish standing to challenge the constitutionality of government activity. The Court focused on the one exception to the rule. The Supreme Court decided in Flast that a taxpayer could seek to enjoin a specific appropriation of Congress as a violation of the Establishment Clause if the appropriation was made pursuant to Congress’ Article 1, Section 8 taxing and spending power.  

Hein presented a slightly different twist to the standing issue. The Hein taxpayers brought an Establishment Clause challenge to an Executive Branch program funded out of its own general appropriations.  A divided panel of the Seventh Circuit found standing.  The Supreme Court reversed. A three-justice plurality declined to extend the Flast exception beyond the congressional action facts present in the case but also stopped short of overruling Flast, a result preferred by the two-justice concurrence. After the decision in Hein, the panel noted, the Flast exception is now strictly limited to its facts. The only relief for which the taxpayers have standing is injunctive, which is no longer available here. The case is moot and was properly dismissed.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

EEOC v. LEE’S LOG CABIN  (October 6, 2008)

Korrin Stewart was diagnosed as HIV-positive when she was just fourteen years old. Shortly thereafter, she learned that it had actually developed into AIDS. At the age of eighteen, she applied for a server position at Lee’s Log Cabin (“Lee’s”). She was aware that the job had a 25-30 pound lifting requirement. Nevertheless, she stated on her application that she could lift no more than 10 pounds and that there were no accommodations that would allow her to perform that requirement of the job. After some time went by without a response from Lee’s, Stewart visited the restaurant and spoke with Zastrow, an assistant manager. In response to Zastrow’s question, Stewart admitted that she was the same person who had alleged that a prior employer had fired her when the employer learned that she was HIV-positive. Stewart also saw a copy of her application, on which appeared the notation “HIV+.” Lee’s did not offer the position to Stewart, ostensibly on the ground that she had no server experience and could not meet the lifting requirement. The EEOC filed suit, alleging that Lee’s violated the Americans With Disabilities Act (“ADA”). The EEOC alleged that Lee’s failed to hire Stewart because it learned that she was HIV-positive. About one month before trial, in response to Lee’s motion for summary judgment, the EEOC presented affidavits from Stewart and her doctors describing how AIDS affected her daily activities. The EEOC presented no separate evidence that HIV affected her daily activities. The district court refused to consider the affidavits because the EEOC had never pleaded the presence of AIDS. Without the affidavits, there was no evidence in the record of the effect of HIV on Stewart’s daily activities. The court granted summary judgment for Lee’s, also noting that a) there was no evidence that Lee’s knew Stewart had AIDS, and b) there was a question whether she met the “qualified individual” element of the statute because of the lifting requirement. EEOC appeals.

In their opinion, Judges Kanne and Sykes affirmed, Judge Williams dissenting. The majority started with the fundamentals. The ADA prohibits employment discrimination “against a qualified individual with a disability because of the disability.” Whether an individual is disabled is an individual inquiry into whether the impairment “substantially limits” the individual’s major life activities. The Court commented that the EEOC “complicated” the inquiry by attempting to refashion its claim as an AIDS claim late in the case. The Court called it a “major alteration” of the EEOC’s case. The Court focused on the Supreme Court’s Bragdon decision and its description of the development of the disease. Noting that there are significant symptomatic differences at different stages of the disease, the Court thought that whether Stewart was HIV-positive or had AIDS was highly relevant to the case. Once the Court concluded that the district court had not abused its discretion in disallowing the affidavits, it had little difficulty agreeing with the proposition that the record was devoid of evidence of the effect of HIV on Stewart’s major life activities.

The Court went on to address, as an alternative ground for affirming summary judgment, the issue of whether Stewart was a “qualified individual.” A “qualified individual” is a person who can perform the essential functions of the job, either with or without reasonable accommodations. The Court held that Stewart was not a “qualified individual,” given her statement in her application that she could not meet the lifting requirement of the job, even with an accommodation.

Judge Williams dissented. She pointed out that HIV and AIDS are not different conditions. Rather, AIDS is simply the final stage of a single disease – HIV. Different stages of the disease are also not necessarily accompanied by different symptoms. Stewart never ceased being HIV-positive. The evidence of the effect of AIDS on Stewart’s daily activities also described the effect of HIV on her activities. Judge Williams compared it to a cancer patient progressing through different stages of the disease. She believed that the EEOC had sufficiently presented evidence that Stewart’s disease substantially limited her major life activity. She also believed that there were questions of fact with respect to the “qualified individual” issue. There was a dispute as to whether the lifting requirement was truly an essential function of the job. Stewart’s testimony that her lifting restriction was temporary also raised a question of fact with respect to her application answers. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ANDREWS v. CHEVY CHASE BANK (September 24, 2008)

The Andrews refinanced their home through Chevy Chase Bank in 2004. They knew a great deal about mortgages, having taken out many for both residential and investment properties. For their 2004 mortgage, they chose a unique and flexible loan that allowed them to vary their monthly payment based on their cash flow. Chevy Chase provided preliminary disclosures, truth-in-lending disclosures at closing, and an adjustable rate rider. The Andrews believed that the minimum monthly payment and interest rate were fixed for a term of five years. In fact, the minimum monthly payment was fixed but the lender adjusted the interest rate each month. The Andrews filed a class action against Chevy Chase Bank, alleging that its disclosures were confusing, misleading, and violations of the Truth in Lending Act (“TILA”). They sought statutory damages, rescission, and attorneys’ fees. The district court granted summary judgment to the Andrews on their rescission and fees claims and denied their claim for statutory damages. The court also granted class certification under FRCP 23(b)(2) and declared that all class members would have the ability to rescind. Chevy Chase appeals.

In their opinion, Judges Manion, Evans (dissenting), and Sykes reversed. The majority noted that TILA allows class actions in a damages action but whether a class can be certified in a TILA rescission action is a matter of first impression in the Seventh Circuit. The First and Fifth Circuits and the California Supreme Court have each held that it cannot. The Court first examined the rescission remedy in TILA. Unlike a statutory or actual-damages remedy, rescission requires the unwinding of a particular transaction and imposes duties on the creditor and debtor in working out the logistics of the rescission. These variations, in the Court’s view, make rescission a poor candidate for class action procedures. The panel distinguished the Supreme Court’s Yamasaki decision, which held that class relief is appropriate “[i]n the absence of a direct expression by Congress” otherwise. The Court focused on the distinction between the jurisdictional statute in Yamasaki and the private rescission process written into the TILA. The majority conceded that the presence of a cap in class action suits seeking damages, and not suits seeking rescission, can support either argument. It can be read to just mean that Congress intended no cap in rescission suits, but the majority thinks that interpretation “strains credulity” and opts instead for the explanation that Congress did not provide a class action vehicle for the rescission remedy. The majority considered and rejected the Andrews’ other arguments.

In dissent, Judge Evans first stated that the statute is unambiguous and does not present a legal bar to a rescission class action, relying on Yamasaki. He added that, even if ambiguous, the statute should be construed consistent with and supported by the language and purpose of the statute. Thus, TILA should favor the victims of the ills sought to be controlled by its terms. Judge Evans also addressed the individual nature of the unwinding process relied on by the majority. He noted that a particular class may not meet the requirements of Rule 26, but whether it does depends on Rule 26, not the TILA.
  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 UNIV. OF CHICAGO HOSPITALS v. UNITED STATES (September 23, 2008)

The University of Chicago Hospitals (“UCH”) is an Illinois not-for-profit corporation that administers graduate medical education programs. One such program is its residency program, in which medical school graduates perform services at the hospital as part of their medical training. In return for these services, UCH paid residents a salary and paid FICA taxes to the United States on their behalf. UCH applied for a refund of the FICA taxes paid in 1995 and 1996 on the grounds that the residents qualified for the “student exemption” to FICA in the Internal Revenue Code (“IRC”). In the district court, the United States moved for summary judgment, arguing that residents could not qualify as “students” as a matter of law under the IRC. The district court rejected the argument, denied summary judgment, and certified its order for appeal.

In their opinion, Judges Bauer, Cudahy, and Sykes affirmed. The Court started with the language of the student exemption itself, which excludes from the term “employment” any “service performed in the employ of . . . a school . . . if such service is performed by a student who is enrolled and regularly attending classes at such school . . . .” Then the Court addressed the government’s argument that residents did not qualify under the unambiguous, literal language of the statute. The government argued that a resident is not a “student” and a hospital is not a “school” in the common and natural meaning of those words. The Court disagreed with such a narrow reading of the words. In fact, it held that the unambiguous language of the clause did not exclude residents from qualifying.
Although it found the statute unambiguous, the Court nevertheless addressed the government’s arguments that it would have considered had it found ambiguity. The government relied on the legislative histories of the student exemption and the intern exemption, the later repeal of the intern exemption, and a post-1996 amendment to the student exemption that excluded students who worked in excess of forty hours per week. It concluded that, combined, these supported an interpretation that excluded residents from the definition of “student.” The Court did not agree. Instead, it found that, to the extent the statute was ambiguous, the relevant regulations called for a case specific approach to eligibility and that approach was a permissible and proper interpretation of the statute. 
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link