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

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.

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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.

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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.  

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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. 

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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.

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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.
 

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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.

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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.

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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. 

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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.
  

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 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. 
 

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