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

IN RE: ORTIZ (December 30, 2011)

Aurora Health Care filed proofs of claim in thousands of Wisconsin bankruptcy cases between 2003 and 2008. The filings were public and contained some medical treatment information. Two class actions were filed against Aurora alleging that it violated a Wisconsin statute that requires that all health records be kept confidential. Bankruptcy Judge Kelley (E.D. Wis.) granted summary judgment to Aurora in both cases. The classes appealed directly from the bankruptcy court.

In their opinion, Seventh Circuit Judges Williams and Tinder and District Judge Gottschall dismissed for lack of appellate jurisdiction. When the Court heard oral argument, it believed that it had appellate jurisdiction under Section 158(d)(2). But then the United States Supreme Court decided Stern v. Marshall, in which it held that bankruptcy judges lacked authority to enter final judgments in traditional common law actions. After receiving additional briefing, the Court addressed the jurisdictional issue. First, it looked to what authority Congress gave to the bankruptcy courts. Congress gave the bankruptcy courts authority in cases arising under, arising in, or related to Title 11. But Congress gave the courts authority to issue final orders only in "core" proceedings and core proceedings are those that either arise under Title 11 or arise in a Title 11 case. The Court concluded that the debtors' claims were core proceedings in that they arose in a bankruptcy case. Satisfied that the bankruptcy court had congressional authority to do what it did, the Court turned to whether Congress exceeded its powers under the Constitution. It concluded that it did. Just like the claim in Stern, the debtors' claims are private party claims involving interests of state law. Just because these ordinary state law claims are related to the debtors' bankruptcy cases does not mean that the bankruptcy court has jurisdiction to issue a final order. The Court also concluded that the bankruptcy court's ruling did not fit within any the other types of orders that are directly appealable under Section 158(d)(2)(A).

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CHICAGO TITLE LAND TRUST COMPANY v. POTASH CORPORATION OF SASKATCHEWAN SALES LIMITED (December 27, 2011)

Potash Corporation of Saskatchewan Sales Limited signed a 10-year lease with Chicago Title Land Trust Co. in 1995 for space in a Skokie, Illinois office building. Several years later, Potash wanted significantly more space in the same building and so advised Chicago Title. When Chicago Title could not provide the space, Potash exercised what it thought was a contractual option to cancel. Chicago Title interpreted the lease differently and brought suit in state court against Potash and its parent for breach of lease. After years of litigation, Potash prevailed. While that suit was pending, Chicago Title brought a fraud suit against Potash's CEO and General Counsel. The suit was originally dismissed without prejudice with leave to re-plead but, after 2 1/2 years without repleading, was dismissed with prejudice. Undaunted, Chicago Title filed suit in federal court against Potash and its parent, again alleging breach of lease and fraud. Judge Bucklo (N.D. Ill.) dismissed on res judicata grounds, citing both state court cases.

In their opinion, Seventh Circuit Judges Manion, Williams, and Tinder affirmed. The Court applied Illinois res judicata law because the earlier cases were in state court. Illinois requires a final judgment on the merits in the earlier case and the same cause of action and parties. Applying that test, the Court agreed with the district court that the state court suit against the individuals barred the current suit. It was dismissed with prejudice for failure to state a claim, which is the equivalent of adjudication on the merits. The two cases plead the same cause of action under Illinois' transactional test, even though they plead different theories, because they arise from the same group of operative facts. Finally, the cases involve the same parties. As corporate officers, the CEO and General Counsel are in privity with Potash and are considered the same parties. The Court recognized that Chicago Title did not bring a breach of lease claim against the individual defendants and possibly could not have, since individuals are generally not liable on a corporation's lease. But that does not change the result. Chicago Title had one cause of action arising out of the same set of operative facts. It was its decision to split the cause of action and it must live with the consequences.

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FTC v. TRUDEAU (November 29, 2011)

Kevin Trudeau advertises his books on infomercials. The FTC, after entering into a court approved settlement, alleged that Trudeau violated the settlement and sought a contempt finding. Judge Gettleman (N.D. Ill.) agreed and found Trudeau in contempt. He imposed a $37.6 million fine and banned Trudeau from making infomercials for three years. On appeal, the Seventh Circuit affirmed (opinion and intheiropinion) the finding of contempt but remanded on the sanctions. It concluded that the district court failed to adequately explain its rationale for the monetary sanctions and also concluded that a complete ban was inappropriate, in that he did not give Trudeau an opportunity to comply with the agreement. On remand, Judge Gettleman reinstated the monetary penalty, explaining that he arrived at it by multiplying the number of books ordered through the 800 number by the price of the books plus shipping. The court also imposed a $2 million performance bond if Trudeau wanted to do any more infomercials, to be effective for five years. Trudeau appeals.

In their opinion, Seventh Circuit Judges Ripple, Manion, and Tinder affirmed. The Court rejected Trudeau's argument that the fine was improper because it was based on consumer loss. That is an appropriate approach to a contempt finding even if, as he alleges, Trudeau did not benefit to the same degree as the consumers lost. The Court actually noted that the district court's figures were conservative. It only included those books that were sold through the infomercial’s 800 number, even though other books were sold through the Internet and retail outlets. With respect to the performance bond, the Court rejected Trudeau's argument that the FTC had to show significantly changed circumstances. That rule applies only in institutional reform cases. Here the proper test is whether the order was achieving its purpose -- and it clearly was not. Finally, the Court rejected Trudeau's First Amendment argument and found the requirement narrowly enough drawn to meet the constitutional standard: a) the bond is only triggered if Trudeau decides to engage in infomercials, b) the district court gave him an opportunity to seek a reduction in the amount of the bond with proof of his financial position, and c) the amount of the bond is proportional to the threatened harm.

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LG DISPLAY CO. v. MADIGAN (November 18, 2011)

The Illinois Attorney General filed suit in state court against LG Display and other LCD panel manufacturers, alleging violations of the Illinois Antitrust Act. The complaint sought damages for the state itself, as purchaser, and also sought damages for the state's residents, under parens patriae. The defendants removed the complaint to federal court under the Class Action Fairness Act. Judge Dow (N.D. Ill.), on plaintiff’s motion, remanded the case to state court. Defendants petition for permission to appeal.

In their opinion, Seventh Circuit Judges Flaum, Williams, and Tinder denied the petition. A remand order is generally not reviewable on appeal. Here, however, the defendants argue that the Attorney General's claim is really a disguised class action or mass action under CAFA. Under CAFA, a class action is a civil action brought under Rule 23 (or similar state statute or rule) as a class action by a class representative. The Attorney General's case was not brought under Rule 23 or a state counterpart, was not brought by a class representative, and was not brought as a class action. It was brought as a parens patriae case, authorized by the Illinois Antitrust Act. Therefore, the case is not a class action. Under CAFA, a mass action is an action brought by 100 or more persons proposed to be tried jointly because of common questions of law or fact. But here, there is only the claim of the Attorney General. Also, CAFA expressly excludes from the mass action definition actions asserted on behalf of the general public pursuant to a state statute. Therefore, the case is not a mass action. The district court was correct in remanding the case to the state court.

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RAY v. MAHER (November 1, 2011)

Robert Ray was arrested in late 2007. Before he was taken to jail, he was treated at a local hospital for alcohol withdrawal. He became ill while in jail. Jail authorities administered some medication but never took him to a hospital. Ray died within days. Almost 3 years later, his ex-wife was appointed administrator of his estate. She brought § 1983 claims for denial of basic medical services against the jail doctor and a number of other Sangamon County employees. Ray’s daughter, the sole beneficiary of the estate, recently turned 18 and replaced her mother as administrator. Judge Mihm (C.D. Ill.) dismissed the claim on statute of limitations grounds. The administrator appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Wood and Tinder affirmed. The limitations period for a § 1983 claim is governed by state law. In Illinois, one has two years within which to file such a claim. The estate's administrator did not meet that 2009 deadline. Its only argument is that the beneficiary of the estate was under the age of 18 at the time the claim accrued and she brought the claim within two years of her reaching majority. Unfortunately, that argument is misplaced. The claim belongs to the estate. It must be brought by its administrator on a timely basis in order to survive. A beneficiary does not have a personal claim. His or her age at the time the claim accrues is irrelevant.

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FREDA v. COMMISSIONER OF INTERNAL REVENUE (August 26, 2011)

In 1985, Pizza Hut wanted to switch to a sausage made under a process developed by C&F. Since C&F could not satisfy Pizza Hut’s purchase needs, C&F disclosed its process to Pizza Hut under a confidentiality agreement and also licensed its process to several of Pizza Hut's other suppliers. C&F brought suit against Pizza Hut and IBP in 1993, alleging that Pizza Hut shared the sausage process with IBP without a license agreement and started buying its sausage from IBP. It alleged that Pizza Hut misappropriated and disclosed trade secrets and that it suffered lost profits and lost opportunities. The district court dismissed the claims against Pizza Hut but assessed over $10 million in damages against IBP. After an appellate court affirmed the damages award, IBP paid the judgment. C&F treated $2.86 million of the judgment as ordinary income on its determination that that reflected its lost profits. It treated the rest as capital gains. The appellate court also reversed the dismissal of Pizza Hut and remanded the case. The parties settled that claim for $15 million. C&F characterized the $6 million it realized from the settlement as a trade secret sale and reported it as long-term capital gain. Its shareholders did the same. The Commissioner of Internal Revenue issued notices of deficiency to the shareholders, asserting that the $6 million should be treated as ordinary income. After a one-day trial, Judge Chiechi (U.S. Tax Ct.) sustained the Commissioner’s determination. The court rejected the arguments that the settlement proceeds were for damage to a capital asset (C&F's trade secrets) and that the settlement proceeds reflected the sale of a capital asset.

In their opinion, Seventh Circuit Judges Flaum, Manion (dissenting), and Tinder affirmed. Although the Court conceded that the "origin of the claim" doctrine was not directly applicable, it concluded that its underlying principles were. Under that doctrine, settlement proceeds are to be classified based on the nature of the action settled. The Court concluded that the Tax Court's finding of fact that the settlement was for lost profits, lost opportunities, operating losses, and expenditures was not clearly erroneous. Under that finding, the shareholders' argument that the settlement was for damages to a capital asset was rejected. The shareholders had the burden of demonstrating that the settlement proceeds were for something other than that. That they failed to do. The Court also rejected the sale of a capital asset argument. It found no support in the record for such a conclusion.

Judge Manion dissented. Although he concurred with the panel's treatment of the asset sale argument, he believed that the settlement proceeds should be treated as a recovery of value lost when a trade secret was misappropriated. Under his understanding, the Tax Court misread the complaint. Although the complaint did seek lost profits, Judge Manion pointed out that the complaint was filed against both Pizza Hut and IBP. The claim against IBP was for lost profits. The claim remaining after the IBP settlement was a trade secret misappropriation claim. The Pizza Hut settlement was compensation for its diminished value and should have been treated as capital gains.

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HERNANDEZ v. FOSTER (August 26, 2011)

Fifteen-month-old Jaymz Hernandez’ parents brought him to the hospital where x-rays established that he had a broken arm. The Hernandezes reported that they thought he had fallen out of his crib. Although the fracture was common in children, a hospital nurse was suspicious. The parents had slightly inconsistent stories about the circumstances of the injury and about whether Jaymz could walk. Jaymz also had unexplained, old bruises. The nurse reported her suspicions to the Department of Children and Family Services. Although the DCFS instructed the hospital to release Jaymz to his parents, it also began an investigation, which it assigned to Pamela Foster-Stith. Foster-Stith interviewed the nurse and doctor and prepared an action plan for a home visit and risk assessment. After receiving the approval of her supervisor, she sent investigator Lakesha Foster to the home. Foster found nothing particular suspicious in her visit. Nevertheless, given the injury and the inconsistent stories, Foster and Foster-Stith wanted a home safety plan. The family resisted. Foster-Stith, in consultation with her supervisor, decided that the Department had to take Jaymz into protective custody. She communicated that decision to Foster, who was still at the family's home. Foster explained the decision to the family, including the fact that they could not have contact with Jaymz during the custody period, and took Jaymz in the custody. Jaymz was placed with his great-grandparents. The next day, two different doctors examined Jaymz. Both concluded that the injury was not suggestive of abuse. Foster also spoke with an assistant state's attorney, who advised her that there was not enough evidence to seek protective custody. Although the Department decided to terminate its protective custody, Foster would still not let the family visit Jaymz. The next day, Foster presented a safety plan to the Hernandezes which would require Jaymz to remain with his great-grandparents with supervised visitation by his parents. After being told that they could not see Jaymz without agreeing to the safety plan, the Hernandezes agreed. The Hernandezes signed another safety plan the following week, which the Department later agreed to terminate. The Hernandezes brought suit pursuant to § 1983 for violations of the Fourth and Fourteenth Amendments, naming Foster, Foster-Stith, and the supervisor. Judge Conlon (N.D. Ill.) granted summary judgment to the defendants on qualified immunity grounds. The Hernandezes appeal.

In their opinion, Seventh Circuit Judges Sykes, Tinder, and Hamilton affirmed in part and vacated and remanded in part. The question for a qualified immunity defense is whether the defendants violated a clearly established constitutional right. The Court considered each plaintiff’s claims separately. First, all three plaintiffs asserted substantive due process claims with respect to the initial seizure. The Court noted that since Jaymz had a Fourth Amendment claim, he could not assert a substantive due process claim. With respect to Jaymz’ Fourth Amendment claim, the Court concluded that the removal was supported by probable cause. It relied on the unexplained injury, the older injury, and the inconsistent and contradictory statements of the parents. Therefore, the defendants were entitled to qualified immunity on that claim. The parents’ substantive due process claims fail for the same reason. Second, the Court addressed the plaintiffs' substantive due process claims relating to the continued withholding. This claim arises from a right to familial relations. The defendants needed reasonable suspicion of abuse to override that right. Again, however, the court concluded that Jaymz’ claim was properly analyzed under the Fourth Amendment while his parents' claims should be analyzed under substantive due process. Here, the Court found genuine issues of material fact with respect to defendants' knowledge that the continued withholding violated constitutional rights. The Court relied heavily on the normal physical exams and the assistant state's attorney's response. Summary judgment was improper. Third, the Court addressed the substantive due process claims regarding the allegedly coerced safety plan. The Court concluded that the defendants had no reasonable suspicion that Jaymz was in danger of abuse when they presented the safety plan. The alleged threats were extremely coercive. The Court concluded that the district court erred in granting summary judgment on those claims. Next, the Court considered the plaintiffs' procedural due process claims. The basis of these claims was that the defendants took Jaymz into custody without any pre-deprivation hearing. Here, the Court concluded that the case law at the time of the removal would not have put a reasonable Department investigator on notice that a pre-deprivation hearing was required. The defendants were therefore entitled to qualified immunity on the due process claim relating to the removal. Again, however, the Court found genuine issues of fact on the due process claim with respect to the safety plan. With the allegations of misrepresentations and coercion, qualified immunity would be appropriate.

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MARCATANTE v. CITY OF CHICAGO (August 24, 2011)

The City of Chicago had Collective Bargaining Agreements between 1999 and 2003 with a coalition of trade unions representing certain City employees. When the parties were unable to agree on 2003-2007 CBAs by the then-current CBAs’ expiration date, they entered into a letter agreement. The agreement extended the terms of the then-current agreements. The City also agreed that any wage increase it ultimately agreed to would be retroactive to July 1, 2003, unless otherwise agreed. Months later, while negotiations were still ongoing, the City offered certain employees an incentive to retire early. Some City employees took advantage of the offer and retired in early 2004. The City and the unions reached agreement on the 2003-2007 CBAs in July of 2005. Although the City agreed to a pay raise, it made the increase retroactive to 2003 only for certain employees. The early retirees were not included. A class of retired employees brought suit alleging due process and equal protection violations as well as state law claims for breach of implied contract and breach of express contract. On cross motions for summary judgment, Judge Kocoras (N.D. Ill.) found for the City on the due process, equal protection, and express contract claims but found for the plaintiffs on the implied contract claim and awarded over $1.7 million in damages. The City appeals on the implied contract claim. The plaintiffs cross-appeal on the due process and express contract claim.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Tinder affirmed in part and reversed in part. The Court first struck plaintiffs' cross-appeal as improper. A cross-appeal is appropriate only when a party wants to alter the district court's judgment. The plaintiffs are not seeking any modified relief on the breach of contract appeal. Although they did seek modified relief under the due process claim, they did not do so until their reply brief -- and so waived that claim. As an aside, the Court noted its agreement with the district court's dismissal of those claims on the merits. The Court turned to the implied contract claim, on which the plaintiffs prevailed. An implied-in-fact contract is created by law and is based on the parties' conduct. The contract is inferred from the surrounding facts and circumstances and gives effect to an unstated promise. However, an implied contract cannot exist where an express contract already governs the same subject. Here, the Court found that the subject matter -- plaintiffs' pay rate -- was governed by the Collective Bargaining Agreements. The fact that retroactive increases were given in similar situations in the past is irrelevant, as is plaintiffs' hope for such an increase. Given the existence of the express contract, there can be no implied contract. Furthermore, the letter agreement is unambiguous and only provided that agreed pay raises would be retroactive. Since the parties did not agree on a pay raise for the retirees, there was nothing to make retroactive. An implied-in-law contract is not really a contract but an equitable claim for unjust enrichment. But, just like an implied-in-fact contract, an implied-in-law contract cannot coexist with an express contract on the same subject matter.

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MADDOX v. LOVE (August 24, 2011)

The Illinois Lawrence Correctional Center is a medium-security adult prison facility in Sumner, Illinois with approximately 2,000 inmates. Those inmates proclaim numerous different religious affiliations (46 as of May 2009). When Mannie Maddox arrived as an inmate in early 2004, he was a member of the African Hebrew Israelite (AHI) faith. AHI was one of the 17 religious affiliations for which Lawrence offered regularly scheduled services. Maddox attended services for about six months, until they were terminated. Maddox filed a grievance, asserting a denial of his right to exercise his religion. The prison denied the grievance on the grounds that Lawrence canceled the services for budgetary reasons. Maddox appealed the decision through two more stages of review without success. The prison chaplain also denied Maddox’ request to allow the AHI inmates to meet without a formal service. The prison requires that such meetings be supervised and the chaplain's schedule could not accommodate another religious gathering. Maddox filed a § 1983 complaint against the chaplain and the prison wardens alleging violations of his First and Fourteenth Amendment rights. Judge Gilbert (S.D. Ill.) restructured the pro se complaint into four counts. He dismissed for failure to state a claim the counts relating to discrimination in the allocation of the prison budget. He granted summary judgment on the two counts alleging failure to provide reasonable access to religious materials and failure to provide worship services, concluding that Maddox failed to exhaust his administrative remedies. Maddox appeals.

In their opinion, Seventh Circuit Judges Sykes, Tinder, and Hamilton affirmed in part and reversed and vacated in part. The Court first addressed its jurisdiction, since the district court dismissed the two counts on exhaustion grounds without prejudice. Normally a dismissal without prejudice would preclude appellate jurisdiction. Here, however, Maddox cannot cure the complaint’s defects. That makes the decision a final judgment for appellate jurisdiction purposes. On the merits, the Court first addressed the free exercise and religious discrimination counts. The Court understood the district court's dismissal of these counts, as they were restructured, given the principle that prisons need not provide identical resources to every faith within the prison population. An allegation of a disproportionate allocation of resources does not state a claim. The Court did find fault, however, with the district court's restructuring of Maddox' allegations and explored the substance of those allegations. Maddox alleged a disproportionate allocation of resources to other religions, a singling out of AHI for budget cuts, and refusal to pursue alternatives for AHI members. The Court found that those allegations did, in fact, state a claim for relief. Prisons cannot discriminate against particular religions. Although it is premature to conclude that they did here, Maddox is allowed to make his case. The Court turned to the access to religious materials claim. Since Maddox concedes that he did not grieve that complaint, the Court concluded that the district court properly dismissed that count. Finally, on the group worship claim, the district court dismissed because Maddox failed to exhaust administrative remedies. He did not name the individuals he complained of, as required by the then-current Illinois Administrative Code. The Court disagreed. First, prison officials never raised this procedural infirmity during any of the three grievance stages. Instead, they rejected the grievance on the merits at each stage. When the prison addresses a grievance on the merits without addressing any procedural defect, the grievance has obviously served its purpose in notifying prison officials of the prisoner's complaint. They cannot later rely on that procedural defect to make out an exhaustion defense. Second, the procedural infirmity here was caused by prison's own error. Maddox was given a form that complied with a prior version of the administrative code. It did not require the same degree of factual particularly as did the code in effect at the time of the grievance. Maddox provided all the information that was requested on the grievance form.

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DYNEGY MARKETING AND TRADE v. MULTIUT CORP. (August 4, 2011)

For years, Multuit purchased natural gas wholesale from Dynegy Marketing and Trade. Nachshon Draiman personally guaranteed Multuit's obligation. In 1997, Dynegy expressed interest in acquiring Multuit. Under a confidentiality agreement, it conducted its due diligence. Dynegy ultimately chose not to acquire Multuit but instead entered into a joint venture with one of Multuit's competitors. The relationship soured but Multuit continued to purchase from Dynegy. Multuit was unable to pay its current invoices, however and owed Dynegy in excess of $1.5 million by the end of 2000. On several occasions, Multuit attempted to reach agreement on a long-term price guarantee with Dynegy unsuccessfully. Dynegy ultimately stopped providing gas to Multuit in December 2002 and filed suit. Multuit responded with a host of counterclaims. Shortly after the complaint was filed, the FERC issued a report in which it identified efforts to manipulate price indices in the Western United States energy markets. Dynegy was implicated but the report was limited to the Western United States. In discovery, Multuit attempted to obtain information from Dynegy regarding its price index reporting and calculation. The magistrate judge did not allow it. Dynegy moved for summary judgment on some of its claims and all of Multuit's counterclaims. In response, Multuit submitted an excerpt from the FERC report and a lengthy declaration containing, for the first time, its damage estimates. Judge Nordberg (N.D. Ill.) excluded the declaration and granted Dynegy's motion. After denying Multuit's motion for reconsideration, the court entered judgment pursuant to Rule 54(b). The Seventh Circuit remanded for a prejudgment interest calculation. On remand, Multuit again moved for reconsideration and supplemented the record with additional affidavits. The court denied the motion and entered judgment for Dynegy. Multuit appeals.

In their opinion, Seventh Circuit Judges Kanne and Tinder and District Judge Herndon affirmed. Multuit was chastised by the panel for its "kitchen sink" approach (it presented nine issues) on appeal. The Court considered and rejected each: a) the district court did not err in excluding the declaration when it was the first time Multuit disclosed its damages theory, b) Dynegy's vague statements about "best price" did not amount to an enforceable oral contract, c) there can be no enforceable long-term price agreement when the record presents no evidence of either the price term or duration, d) Dynegy's mistake in failing to invoice Multuit for interest for a period of time did not amount to an implied agreement to forego interest, e) Dynegy offered sufficient proof of its own damages by presenting an expert who testified regarding the invoices and interest calculations, f) the record does not support a conclusion that any alleged price manipulation in the Western United States affected Dynegy's price and therefore its damages, g) Multuit cannot recover on its breach of contract counterclaim when it presented no evidence of damages, h) Multuit cannot recover on its Robinson-Patman Act counterclaim when it presented no evidence of damages, and i) Multuit waived its challenge to the denial of the motion for reconsideration by not addressing the grounds upon which the district court denied it.

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YANCICK v. HANNA STEEL CORPORATION (AUGUST 3, 2011)

Hanna Steel Corporation employed Matthew Yancick, a white man, for a few years in the mid-2000s. Hanna has a policy prohibiting all forms of harassment and instructs employees to report any harassment to the Human Resource Manager or the General Manager. Yancick signed an acknowledgment of the policy and pledged to follow it. Smith worked with Brad Johnson, an African-American man, while at Hanna. Originally, their relationship was good. It began to deteriorate in early 2005. The two had several confrontations, some of which had racial overtones and some of which did not. Johnson also had confrontations with other employees. Yancick complained at times to his immediate supervisor but never to the Human Resources Manager or the General Manager. In December of that year, Yancick suffered severe and permanent injuries when a steel coil fell on him from a machine operated by Johnson. Yancick asserts that the action was intentional and brought a hostile work environment claim under § 1981. Hanna moved for summary judgment. Yancick moved for and was granted additional time under Rule 56 but was warned by the district court that no additional time would be allowed. With four minutes left in his extension, Yancick filed an oversized brief with a motion for leave to file. He did not file any of the referenced exhibits. A short time later, Yancick filed a substitute response that met all of the page and word limits, again accompanied by a motion for leave to file but again unaccompanied by any exhibits. He finally filed the exhibits a few days later. Judge McDade (C.D. Ill.) denied the motion's, did not consider his response or his disputed facts, and granted summary judgment to Hanna. Yancick appeals.

In their opinion, Seventh Circuit Judges Wood, Williams, and Tinder affirmed. The Court first addressed the procedural issue and noted that it routinely endorses district courts' strict compliance with local rules. The Court rejected Yancick's argument that he had good cause or that his failure was simply a "requirement of form" under Rule 83. The Court found no abuse of discretion in the district court's ruling. On the merits, Yancick must prove that: a) he endured a subjectively and subjectively offensive environment, b) race was the cause, c) the conduct was severe or pervasive, and d) there must be a basis for employer liability. The Court conceded that the record before the coil incident showed that Johnson's conduct was immature and boorish and that he exhibited hostility toward Yancick, but concluded that it did not amount to the severe and pervasive work environment required. In fact, most of Johnson's hostility was not race based. With respect to the coil incident itself, Yancick relied in large part on lay opinion testimony that Johnson was racist to support his assertion that the act was intentional. The Court concluded that the testimony was unsupported by facts and merely reflected the witnesses’ beliefs. In addition, the record supports the conclusion that the incident was an accident and not intentional. Finally, the Court noted that Yancick failed to establish employer liability. Hanna had a formal procedure in place. Yancick was aware of it. Yancick did not take advantage of the remedies provided.

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MORISCH v. UNITED STATES OF AMERICA (July 29, 2011)

Gerald Morisch visited the emergency room at the VA Medical Center in Marion, Illinois, complaining of jaw and neck pain. He was referred to a dentist. A few days later, he had an appointment with his primary care physician at the Medical Center. He was referred to an ENT specialist. The specialist noticed a small mass of his neck. She performed a biopsy and ordered a CT scan. The radiologist that perform a CT scan recommended an ultrasound follow-up -- but no one told Morisch. About a month later, Morisch suffered a stroke. He brought a medical malpractice claim against the United States under the Federal Tort Claims Act. Morisch and his wife both testified that she called the St. Louis VA Hospital, where Morisch had the CT scan, on two occasions and reported stroke symptoms. Judge Murphy (S.D. Ill.) entered judgment in the government's favor after a four-day bench trial, concluding that he failed to establish a violation of the standard of care or any proximately caused injury. Morisch appeals.

In their opinion, Seventh Circuit Judges Williams and Tinder and District Judge Gottschall dismissed. The Court first noted that the transcript of the government expert’s testimony from the four-day trial is the only part of the trial record included in the appellate record. The Court concluded that it could not sufficiently review the record. Morisch thus forfeited his appeal. Notwithstanding that conclusion, the Court went on to conclude that the district court did not err in its finding. In order to prevail on his tort claim, Morisch had to establish the proper standard of care, a failure to comply with that standard, and a proximately caused injury. Proximate cause requires expert testimony. Here, the expert testimony was that, without the evidence of the phone call, the doctors had no reason to follow-up with Morisch after his examination. The district court did not err in concluding that the telephone call testimony should be disregarded. It was unsupported by phone records and inconsistent with other testimony and logic. Morisch’s stroke was therefore not the foreseeable result of any conduct on the part of the VA Hospital. 

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BENUZZI v. BOARD OF EDUCATION (July 21, 2011)

Thirty years ago, the Chicago Public School System hired Jessica Benuzzi, a white woman now in her fifties, as one of its first female custodial assistants. A promotion in 2004 qualified her to be the senior custodian at a large school. She was granted a transfer to a school that was closed and undergoing major renovation -- and was scheduled to be opened as the John J. Pershing West Magnet School in the fall 2005. In March of 2005, however, the Board of Education named Cheryl Watkins as the new Pershing principal. Watkins is an African-American woman in her forties. From their first encounter, the two women did not get along. Over the next several school years, Benuzzi complains that Watkins refused to accommodate her request for a shift change, unfairly reprimanded her on numerous occasions, treated her very roughly, demanded a fitness for duty examination, and suspended her without pay on more than one occasion. Benuzzi filed a gender discrimination charge with the EEOC in October 2006. She updated the charges several times thereafter. She filed suit against Watkins and the Board in June 2009 alleging, among the things, gender discrimination and retaliation under Title VII. A few days after Watkins waived service, she reprimanded Benuzzi again. When Benuzzi wouldn't sign the reprimand, she asked the Board to remove her from the school. The Board refused. Watkins was present at Benuzzi's deposition on February 25, 2010. The very next day, Watkins restricted Benuzzi's presence at Pershing and also issued a Notice of Disciplinary action that referred to nine different instances going back several months. Judge Conlon (N.D. Ill.) granted summary judgment to the defendants. In doing so, she did not consider most of Benuzzi's factual submissions because their length violated a local rule. Benuzzi appeals.

In their opinion, Seventh Circuit Judges Flaum, Wood, and Tinder affirmed in part and vacated and remanded in part. The Court first addressed the district court's ruling on the factual submissions. It emphasized its support for local rules and a district court’s policy to insist upon strict compliance. The rule at issue here is 56.1, which requires that a party opposing summary judgment respond to the movant’s statement of facts in no more than forty "short numbered paragraphs." Benuzzi's filed forty paragraphs but her paragraphs sometimes ran as long as 18 lines. Apparently, the district court considered only four of Benuzzi's paragraphs. The Court expressed some concern about such a strict interpretation of the standard that uses the word "short." Since both sides acquiesced at oral argument to the Court's consideration of the entire record, the court did not need to decide if the 56.1 ruling was an abuse of discretion. On the merits, the Court first addressed her gender discrimination claim. One of the requirements for her to succeed on the claim is to show not only that the reasons for her suspensions were dishonest but that they were, in fact, based on discrimination. Benuzzi presented no evidence that gender bias had any impact on Watkins's decisions. Her gender discrimination claim must fail without that link. The Court turned to her retaliation claim. It quickly concluded that she satisfied the statutorily protected activity element and that her suspension without pay was a materially adverse action. The Court also concluded that the Notice of Disciplinary Action and memorandum restricting her hours could constitute a materially adverse action and left that question for a jury. The Court acknowledged that written warnings are generally not enough to constitute a materially adverse action but noted that the context here (numerous charges, for minor transgressions, going back several months, delivered the day after she was deposed) could lead a jury to conclude otherwise. Finally, the Court considered causation. Again, the Court thought that a jury should decide causation with respect to the Notice of Disciplinary Action. Suspicious timing is frequently not enough to establish causation. But here, where the gap was so short and there were no intervening events, a jury should decide. The Court decided that there was not enough causation evidence to send the retaliation claim to the jury.

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CLARENDON NATIONAL INSURANCE CO. V. MEDINA (July 13, 2011)

Guillermo and Maria Medina's son gave his old truck cab to his mother. Although she could not drive it, Guillermo had a commercial license and experience. With Maria's authorization, Guillermo got a job with Town Trucking. Federal law requires interstate truckers like Town to either own their equipment or enter into a lease with the owner. Guillermo and Town entered into a operating agreement in which Guillermo purported to lease Maria's cab to Town. Although Maria never signed the agreement and was not familiar with its contents, she did know that Guillermo entered into a contract with Town and that he did it with her permission. Town had $1 million in insurance coverage for its drivers, including Guillermo, that provides coverage when they are using equipment on Town business. Guillermo also obtained a $750,000 policy to cover him while using the equipment not on Town business. In late November 2006 Guillermo delivered a load of shingles to a store in McHenry, Illinois and was returning with an empty trailer to pick up a second load for delivery. It was during this return trip that Guillermo lost control of his vehicle and struck a small truck, killing its driver. Town’s insurer settled the lawsuit brought by the driver's parents for the policy limits. Guillermo's insurer, Clarendon National, denied coverage. It relied on the policy’s exclusion for accidents that happen when the vehicle is in the business of anyone to whom it is rented. Clarendon filed suit, seeking a declaration of its obligations. The defendants claimed that the exclusion did not apply because the vehicle was actually never rented to Town by Maria, its lawful owner. Judge Kendall (N.D. Ill.) granted summary judgment to Clarendon, concluding that Guillermo entered into the agreement with Town with Maria's knowledge and permission. Defendants appeal.

In their opinion, Judges Rovner, Wood, and Tinder affirmed. In Illinois, the Court stated, an insurance agreement is a contract and the general rules of contract construction apply. If the language of the policy is unambiguous, it should be applied as written. The Court found no ambiguity in the Clarendon policy. The only question is whether the truck was rented to Town at the time of the accident. The Court recognized that the lawful owner of the truck did not sign the agreement. The Court nevertheless found that the truck was rented to Town, the exclusion applied, and Clarendon had no coverage obligation. First, federal regulations define "owner" as including someone who does not have title but has the exclusive use of the equipment. Second, Maria and Guillermo had an agency relationship and Illinois law allows an agent to act on behalf of an undisclosed principal. Third, the agreement between Guillermo and Town satisfied all the requirements for a written contract.

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HARVEY v. TOWN OF MERRILLVILLE (July 11, 2011)

The mostly African-American residents of a Merrillville, Indiana subdivision were unhappy with their retention pond. It frequently flooded and they thought it attracted mosquitoes. When town officials considered a subdivision expansion, the residents became even more concerned. They attempted to express those concerns to town officials. They claim that the officials ignored them, subjected them to racial slurs, and were generally less responsive than they were to the white residents of a different subdivision. Several of the residents filed suit pursuant to § 1983 alleging a violation of the Fourteenth Amendment’s equal protection clause. They also brought many state law claims. They named as defendants the Town, the town engineer, and a large number of other town employees. In a December 2, 2010 order, Judge Van Bokkelen (N.D. Ind.) granted summary judgment to the defendants (but failed to mention the engineer) on the ground that plaintiffs failed to identify a similarly situated class. He also declined to exercise supplemental jurisdiction over the state law claims and "remanded" the case to state court. After the engineer sought clarification, the court issued an order the following day pursuant to Rule 60(a) granting summary judgment to the engineer. A few months later, the district court entered Rule 58 judgment as to all defendants. Plaintiffs appealed the December 2 order, but mentioned all defendants. The plaintiffs did not file a notice of appeal with respect to the December 3 order or the later judgment.

In their opinion, Judges Cudahy, Kanne, and Tinder affirmed as modified. The Court first rejected the engineer's arguments that: a) plaintiffs failed to effectively appeal summary judgment in his favor because they did not appeal from the December 3 order or the later judgment, and b) plaintiffs waived their argument as to him by not developing it adequately. With respect to the former, the Court noted that failed attempts to comply with Federal Rule of Appellate Procedure 3  are generally not fatal if the appellee is not harmed. Here, the appellant's identified the engineer by name and even included a copy of the judgment in their brief, which also named him. Their technical noncompliance does not prevent the Court from having jurisdiction. With respect to the latter, the Court acknowledged many deficiencies in the briefing but concluded that plaintiffs addressed the engineer enough to avoid waiver. On the merits, the Court agreed that plaintiffs failed to make out an equal protection claim sufficient to get past summary judgment. To do that, the plaintiffs had to present evidence that they were in a protected class, that they were similarly situated to others in an unprotected class, and that they were treated differently. They did present some evidence of similarities with the residents of another subdivision but they failed to carry the day. There was more evidence of substantial differences between the groups, including subdivision zoning differences and the fact that the other subdivision did not even have a retention pond. In addition, plaintiffs failed to present evidence, other than their pleadings, that the other residents even belonged to an unprotected class. And finally, the record seems to show that the other residents group was actually treated less favorably than the plaintiffs. The district court did err, however, in remanding the case to state court. The case did not originate in state court and cannot be remanded there. The district court should have dismissed without prejudice.

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ROBERTHENRY DAVIS, SR. v. TIME WARNER CABLE OF SOUTHEASTERN WISCONSIN (July 5, 2011)

Time Warner Cable of Southeastern Wisconsin employs two sales teams. The inside team takes calls from business subscribers and is paid mostly through commissions. The outside team is responsible for landing new customer accounts and is paid principally by salary. In the early 2000s, the inside team was comprised of mostly African Americans and the outside team was comprised of mostly whites. Roberthenry Davis was an African-American member of the inside team. Two women, one African-American and one white, joined the inside team in 2005. The white saleswoman's lack of success created friction on the team and even led to rumors outside the team. The team's manager, a white male, criticized the African-Americans on the team for not being more cohesive. The African-Americans objected to that treatment and Davis complained. In late 2006, Davis erroneously treated a simple service request as a commissionable transaction, even though two of his colleagues disagreed. Time Warner ultimately reversed Davis' treatment of the request and concluded that he had violated employee guidelines. Time Warner fired Davis. After further investigation, however, a human resources manager recommended that the company reinstate Davis with back pay, but with a warning and an improvement plan. Although there was disagreement within the company, Davis was soon reinstated. Davis was unhappy about the way he was treated when he returned and he was also unhappy with a new compensation scheme that reduced commission opportunities for the inside team. Davis filed suit, alleging that Time Warner discriminated against him and retaliated against him when it fired him and when it changed the compensation scheme. Judge Adelman (E.D. Wis.) granted summary judgment to Time Warner on the ground that race was not a motivating factor in the company's actions. Davis appeals.

In their opinion, Judges Flaum, Manion, and Tinder affirmed. The Court addressed each claim (discriminatory firing, retaliatory firing, discriminatory compensation, and retaliatory compensation) separately. With respect to discriminatory firing, the Court agreed with the district court that Davis failed to provide evidence of a causal connection between Time Warner’s conduct and his termination. The Court noted that there was some evidence of his manager's insensitivity, or even bigotry, but no evidence that it was a motivating factor. And there was evidence that Time Warner strictly enforced its guidelines and had fired many employees, both white and African-American, for violations similar to Davis’. Davis' retaliatory firing claim was based on his complaints to his manager about what he perceived as unfair treatment. Again, the Court noted the lack of evidence that it was his complains that led it to his termination. Indeed, the evidence was that the company regularly terminated employees for guidelines violations. Davis classified his discriminatory compensation claim as a disparate treatment claim. In order to succeed on that claim, he had to produce evidence that Time Warner reduced his compensation on account of his race. Here, the revised compensation plan applied to all employees of whatever race on the inside team. That fact, coupled with the fact that a member of the inside team could transfer to the outside team, leads to the inescapable conclusion that the decision was not race-based. Finally, the Court reached the same conclusion with respect to Davis' retaliatory compensation claim. There was no evidence to link his complaints to his manager with the changes in the compensation plan.

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SMEIGH v. JOHNS MANVILLE, INC. (June 29, 2011)

For years, Aaron Smeigh was a model employee at Johns Manville. He had a spotless record. That changed in September of 2008. It was then that Smeigh severed his finger at work. While awaiting the arrival of an ambulance, Smeigh told his supervisor that he did not take drugs but that he might not be able to pass a drug test. He said it was because he had recently been in a room where marijuana had been smoked. The supervisor told the plant manager that Smeigh might not pass a drug test. In fact, Smeigh took a drug test at the hospital and it came back negative. The company considered whether Smeigh's statement violated Johns Manville's substance abuse policy. A human resources manager decided that it was. The company decided to allow Smeigh to keep his job if he entered into a Stipulation of Understanding. The stipulation would require him to meet with a counselor, submit to random drug and alcohol tests, and possibly pay for the tests. Smeigh refused to sign the agreement and the company fired him. After the union filed a grievance, the company offered to hire him back if he passed a drug test and agreed to be subject to random drug tests over two years. Again, Smeigh refused. A union secretary cleaned out his locker to separate company property from personal property. Someone apparently stole some of his personal property before it was returned to him. Smeigh brought suit for unlawful discharge in retaliation for filing a workers' compensation claim and for civil conversion under state law. Judge Pratt (S.D. Ind.) granted summary judgment to the company. Smeigh appeals

In their opinion, Judges Flaum, Evans, and Tinder affirmed. Although an employee can recover damages if he has been terminated for filing a workers' compensation claim, he must present evidence that his termination was solely in retaliation for filing such a claim. Here, Smeigh relies on indirect evidence of causation. In fact, he relies almost exclusively on timing. The Court noted the timing is rarely sufficient, by itself, to create a question of fact. In addition, here there is an intervening event -- his refusal to sign the stipulation. The Court noted that the record shows that the company actually submitted the workers’ compensation claim on his behalf, wanted him to sign the stipulation and retain his job, and was willing to reinstate him a few months later. No reasonable jury could find in his favor. The Court also affirmed on the conversion count. In order to prevail on such a claim, a plaintiff must prove criminal intent. Here, company policy required a company employee to clear out a terminated employee's locker, separate company property from personal property, and return the personal property. The record shows that the employee's control over Smeigh's property was authorized or, at least, she had a reasonable belief that it was. In addition, the only defendant is the company and there is no evidence in the record that the company knew that the employee continued to possess Smeigh's property and Smeigh did not argue vicarious liability. The Court chastised Smeigh for even including the conversion count in the appeal without even explaining his rationale for disagreeing with the district court's analysis. Notwithstanding its criticism, the Court declined to impose sanctions.

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COSTELLO v. GRUNDEN (June 28, 2011)

Several senior Comdisco, Inc. employees participated in the company's shared investment plan (SIP) program. Under the program: a) participants purchased Comdisco stock, b) the purchase was funded exclusively by personal loans, c) the participants executed promissory notes in their personal capacities, d) Comdisco guaranteed the loans, e) the lender remitted the loan proceeds directly to Comdisco, f) Comdisco held the shares, g) there were several restrictions on the ability to sell the stock, and h) participants delivered a blank stock power to Comdisco. Although some SIP participants later sold their stock and made healthy profits, others were still holding the stock when Comdisco went into bankruptcy. As part of the settlement on the guarantee, the lender assigned its rights under the notes to the Comdisco Litigation Trustee. The Trustee brought suit against the participants and moved for summary judgment against two of them. Judge Gettleman (N.D. Ill.) granted the Trustee's motion for summary judgment, rejecting the defendants' defenses. The court then granted the Trustee's motion for summary judgment against the remaining defendants on the bases of his earlier ruling and his rejection of the additional defense. Defendants appeal. The Seventh Circuit issued an opinion on October 18, 2010. On June 16, 2011 the Court granted a petition for panel rehearing and vacated the October opinion and judgment.

In their opinion, Judges Kanne, Rovner, and Tinder vacated the summary judgments in favor of the Trustee and remanded for further proceedings. The defendants raised several arguments on appeal. First, the defendants argued that the district court erred in not allowing them to assert violations of Regulations G and U as affirmative defenses. The Court agreed. It concluded that a private right of action under either § 7(d) or § 29(b) is not a prerequisite to asserting a violation of Regulation G or U as an affirmative defense. It also concluded that the "zone of interests" prudential standing requirement does not apply when a party uses a violation of the statute or regulations defensively. Second, the defendants argued that the district court erred in concluding that Comdisco and the lender did not violate the regulations. Again, the Court agreed. With respect to Comdisco, the Court concluded that the Trustee did not raise it in his summary judgment papers. With respect to the lender, the Court identified genuine issues of fact with respect to the good faith non-reliance exception. Third, the defendants challenged the summary judgment ruling on the § 10(b) illegality defense. The Trustee originally only argued that the defendants could not prove falsity. In his reply brief, he then argued that defendants had to establish all elements of the defense. The Court concluded that the defendants did not have to present their evidence on the other elements of the defense and that the district court erred in granting summary based on lack of scienter. The Court also held that the district court erred in applying a heightened "strong inference" of scienter requirement. Fourth, the defendants argued that the notes are unenforceable due to violations of § 17(a) of the Securities Act. Because the Trustee defended the district court's ruling only on lack of scienter, the Court vacated the judgment for the same reasons it vacated with respect to the illegality defense. Fifth, the defendants challenged the district court's extension of its ruling with respect to the first two defendants to the other defendants. The district court's ruling with respect to the first two defendants was that the misrepresentations were expressions of legal opinion and therefore could not support a fraud claim. But the later defendants identified an exception to that general rule. The district court erred in that it never considered the argument. Finally, the defendants argued that the district court erred in granting summary judgment on their excuse-of-nonperformance defense. Based on its earlier rulings that summary judgment on the counts alleging statutory and regulatory violations was improper, the Court also concluded that summary judgment on the excuse-of-nonperformance defense was improper.

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BAGLEY v. BLAGOJEVICH (May 2, 2011)

In 2003, the Illinois Department of Corrections’ chain of command at its high-security facilities comprised 12 layers, including captain. Although the captains were not represented, other IDOC employees were. The American Federation of State, County and Municipal Employees represented sergeants and other employees in its RC-6 bargaining unit and represented lieutenants in its CU-500 bargaining unit. Another union, the Illinois State Employees Association attempted to organize the captains in 2002. At the same time, Illinois faced a huge budget deficit. Newly-elected Governor Blagojevich had promised to reduce spending and eliminate government management layers. So he proposed eliminating the captain position. After the Legislature passed a budget that included the captain position, Blagojevich vetoed it. Illinois' plan was to place the captains in other agencies, denote them to lieutenants, or lay them off. The AFSCME opposed the plan to place former captains into open lieutenant positions because it wanted its own members placed in those positions. Illinois also created a new position of "shift commander." Some captains became lieutenants and joined the CU-500 bargaining unit. IDOC calculated their seniority pursuant to the CBA as their demotion date. Some captains became officers and joined the RC-6 bargaining unit. IDOC gave additional seniority to these employees based on its interpretation of that CBA. The union objected and filed a grievance. IDOC and the union ultimately agreed to calculate seniority based only on the employee's continuous service after his return to the unit. A number of former captains sued Governor Blagojevich and other officials pursuant to § 1983, alleging that the elimination of the captain position and seniority treatment were in retaliation for their attempts to unionize. The plaintiffs sought to depose Blagojevich. Between February 2007 and October 2008, the parties fought over the deposition. The district court ultimately granted Blagojevich’s request for a protective order on legislative immunity grounds. Several months later, Judge Mills (C.D. Ill.) granted summary judgment to the governor, also on legislative immunity grounds. The other defendants then moved for summary judgment. The plaintiffs conceded, given the law of the case, that the other defendants were entitled to immunity on the job elimination claim. They did oppose summary judgment on the seniority retaliation count. Judge Mills granted summary judgment to the other defendants. He did not agree that the law of the case settled the immunity question and concluded that plaintiffs waived it by not contesting it. On the seniority retaliation claim, he concluded that there was no causal link between the union officials and the administration. Plaintiffs appeal.

In their opinion, Judges Kanne, Tinder, and Hamilton affirmed. The Court first addressed legislative immunity. Bogan tells us that the question of whether an action is legislative and therefore entitled to absolute immunity depends on the nature of the act rather than the actor's intent. There, the Supreme Court looked both to the form and substance of the action. Although the Court noted that Bogen does not require that two-part test, it nevertheless applied it. With respect to form, the Court had little difficulty in concluding that a governor's veto is legislative. In fact, the plaintiffs forfeited the point. With respect to substance, the Court distinguished an individual firing with the elimination of a position (and noted that other circuits applied the same distinction). The termination of one employee's job is not legislative in substance -- but the elimination of an entire position is. Having concluded that Blagojevich's acts were legislative, the Court stated that he was thus entitled to immunity both from the suit and from defending himself in the suit. The district court did not abuse its discretion in blocking the deposition. With respect to the seniority retaliation count, the Court agreed with the district court that the evidence presented on the record was insufficient to create a genuine dispute of fact on causation.

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COLE v. COMMISSIONER OF INTERNAL REVENUE (March 28, 2011)

Scott Cole is a licensed attorney in Indiana, specializing in business law and tax consulting. Beginning in the 1990s, Scott and his brother, also an attorney, created what the court referred to as a "web of corporate and partnership entities serving dubious purposes." In 2001, Scott's law practice had a banner year. He received $1.2 million that year from one client alone. But when Scott and his wife Jennifer filed their joint tax return for 2001, they reported only about $100,000 total income. The IRS conducted an audit. The Coles kept very few records, requiring the IRS to reconstruct their earnings indirectly. They used both the "specific items" and "bank deposits" methods. The former looks for specific amounts of unreported income and the latter assumes that money in a taxpayer's account is income. The IRS ultimately concluded that the Coles underreported their income by over $2.5 million. They assessed a deficiency of over $500,000 and imposed a fraud penalty of over $400,000. The Coles petitioned the Tax Court for relief. The Tax Court found against the Coles and assessed the same deficiency and fraud penalty calculated by the IRS. The court found that: a) the IRS was justified in its indirect income reconstruction because of the Coles’ failure to maintain adequate records, b) the indirect reconstruction was reasonable, and c) there was "clear and convincing" evidence of fraud. The Coles appeal.

In their opinion, Judges Kanne, Tinder, and Hamilton affirmed. The Court first noted that the Coles waived most of the issues they raised in their 71-page brief because they failed to adequately develop the arguments. The Court identified two issues (of 15 total) that the Coles adequately developed -- whether the Tax Court was wrong in a finding that they omitted income and whether the Tax Court was wrong in finding fraud. On the first issue, the Coles have a heavy burden. An IRS deficiency assessment is entitled to a presumption of correctness and the Court's review of the Tax Court's findings of fact is under a clearly erroneous standard. The Court concluded that the Coles failed to overcome the presumption and failed to show any clear error. On the fraud issue, the Coles have a somewhat lighter burden. Although the clearly erroneous standard still governs the Court's review, there is no presumption of fraud. Instead, the IRS must prove fraud by "clear and convincing evidence." In order to meet that burden, the IRS must show that the taxpayer had specific intent to evade the tax. The IRS can show that intent with circumstantial evidence. The Supreme Court and other courts have identified certain "badges of fraud" that can be used in making a circumstantial case: a double set of books, false entries, destruction of records, covering up income, understatement, failure to file, filing late, co-mingling assets, and failing to keep adequate records. Courts also are allowed to consider a taxpayer's education and intelligence. Here, the Tax Court relied on the Coles’ education and intelligence (Scott is a lawyer, Jennifer is an accountant), their income understatement, their elaborate corporate structures, their failure to maintain adequate records, the co-mingling of business and personal assets, and their concealing of assets. The Court found no clear error in the Tax Court's fraud finding.

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OMNICARE v. UNITEDHEALTH GROUP (January 10, 2011)

Medicare's Part D subsidized prescription program was scheduled to go into effect on January 1, 2006. Participation proposals from health insurance companies for were due in August of 2005. Both UnitedHealth Group ("United"), a very large national health insurance company, and PacifiCare, a small California health insurance company, were independently preparing their proposals in early 2005. At the same time, however, they were engaged in merger discussions. By mid-2005, they were meeting regularly and exchanging information. A successful Part D proposal had to demonstrate access to a network of pharmacies adequate to serve the program's participants. In furtherance of that requirement, both United and PacifiCare were in discussions with Omnicare, the largest institutional pharmacy in the country. United’s efforts were successful. Although it had some concerns regarding Omnicare's contract terms, it entered into a reimbursement contract with a reimbursement rate comparable to that Omnicare offered others. PacifiCare's negotiations fared less well. Ultimately, PacifiCare submitted its Part D proposal without an Omnicare deal. The formal merger agreement was signed in early July and the companies continued their meetings and information exchange. In September, they collaborated on a strategic options memorandum addressing the integrated company's options with respect to PacifiCare's wholly-owned pharmacy benefits manager subsidiary. At some point, Omnicare became concerned that patients who were insured by PacifiCare but located in facilities exclusively managed by Omnicare would not have access to their prescriptions once the program began. An Omnicare employee even sent an e-mail to United, asking if PacifiCare would be included in the United contract when their deal closed. United replied that PacifiCare would follow its own Part D strategy even if the deal closed. Concerned that it would not be able to service PacifiCare insured, Omnicare reopened the contract negotiations. PacifiCare offered the same deal that it had offered earlier -- Omnicare accepted it without negotiations or counteroffers. In doing so, it agreed to a reimbursement rate significantly lower than that it had received from United. Shortly after Omnicare entered into that contract, United informed Omnicare of its concerns regarding the collateral contract terms and reopened their negotiations. By the time those negotiations stalled, the merger was complete. United advised Omnicare that it would operate under the PacifiCare agreement. Omnicare filed suit against United, PacifiCare, and the PacifiCare subsidiary. It alleged violations of the Sherman Act and the Kentucky Consumer Protection Act as well as claims of fraud, conspiracy, and unjust enrichment. Judge Pallmeyer (N.D. Ill.) granted the defendants' motions for summary judgment. Omnicare appeals.

In their opinion, Seventh Circuit Judges Kanne and Tinder and District Judge Griesbach affirmed. Section 1 of the Sherman Act prohibits agreements that unreasonably restrain trade, including agreements to fix prices. Price fixing agreements are usually between or among sellers but buyers can violate Section 1 as well. To succeed on a Section 1 claim, a plaintiff must show an agreement among the defendants, an unreasonable restraint of trade, and an injury. The district court concluded that Omnicare never got past the first element in that it failed to produce evidence of any concerted action by the defendants that was inconsistent with lawful conduct. Conduct that is as consistent with lawful competition as it is with an illegal conspiracy does not, by itself, allowing an inference of an antitrust violation. The Court noted that it would apply the Market Force two-part test. First, it determines whether the evidence is equally consistent with permissible and improper conduct. If so, it searches for other evidence that would seem to exclude the notion of independent actions. Within that framework, the Court analyzed the evidence: the strategic options memorandum, the information exchange, the prohibition on PacifiCare's incurring major contract liability, PacifiCare's negotiating tactics, the e-mails regarding whether PacifiCare would be included under the United contract, the different reimbursement rates, and United's conduct after Omnicare signed the PacifiCare agreement. In each case, the Court either concluded that the evidence did not equally support an inference of unlawful conduct or, if it did, there was little evidence to exclude the possibility of independent behavior. It also concluded that the evidence, when viewed together, was more supportive of a lawful inference that a conspiratorial one, particularly when viewed in light of the Part D chronology and Omnicare's own role in the events. The Court turned to the state law claims. The fraud claim was based exclusively on United's e-mail concerning PacifiCare's Part D strategy. At most, however, the e-mail is a statement of intent regarding future conduct. Illinois law requires that such statements be part of a scheme to defraud. Since the Court found no such scheme, the common law fraud claim cannot prevail. Likewise, the unjust enrichment claim is based on the allegations of illegal conspiracy. Since the Court found no such conspiracy, that claim fails as well.

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UNIVERSITY OF WISCONSIN v. PHOENIX INTERNATIONAL SOFTWARE (December 28, 2010)

The Court withdrew this opinion on February 10, 2011 and granted Phoenix’ Petition for Rehearing limited to the sovereign immunity issue. Supplemental briefing and oral argument will focus on:
       Whether the district court erred in concluding that plaintiff‐appellee Board of Regents of the University of Wisconsin (Wisconsin) did not waive any sovereign immunity it may have had
to the counterclaims asserted by defendant‐appellant Phoenix International Software (Phoenix),
or otherwise consent to their adjudication in this case?
       Whether the counterclaims brought by Phoenix against Wisconsin are compulsory or
permissive counterclaims under FED. R. CIV. P. 13? 

Phoenix International Software and the University of Wisconsin each registered the mark CONDOR with the Patent and Trademark Office. Phoenix has used the mark since 1978 and registered it in 1997. Wisconsin registered its mark in 2001. Each mark refers to computer software, although the Phoenix system is designed principally for mainframe systems and the Wisconsin system is designed principally for individual computers. Phoenix petitioned the Trademark Trial and Appeal Board to cancel Wisconsin's mark on the ground that it creates confusion. The Board granted the petition and canceled the mark. Wisconsin challenged the Board's decision by filing an action in federal district court. Phoenix counterclaimed for trademark infringement and false designation of origin. Judge Crabb (W.D. Wis.) reversed the Board’s determination on Wisconsin's motion for summary judgment and also dismissed Phoenix's counterclaims on sovereign immunity grounds. Phoenix appeals.

In their opinion, Seventh Circuit Judges Flaum, Wood (dissenting in part), and Tinder reversed and remanded for trial on the likelihood of confusion issue but affirmed on the sovereign immunity issue. The Court first addressed the likelihood of confusion issue and specifically the standard of review. Wisconsin had two choices to challenge the Board's decision: a direct appeal to the Federal Circuit limited to the record below and decided on a substantial evidence standard, or a new action in the district court allowing it to supplement the record below. Since Wisconsin chose the latter course, the Court's standard of review is layered. The Board's findings are owed typical administrative appeal deference while the new evidence is treated like a typical summary judgment record and viewed in the light most favorable to the non-moving party. That required the Court to distinguish the Board's findings from new evidence below. The Court concluded that the district court erred in reversing the Board. The principal issue in the case is the likelihood of confusion. The Board considered the actual nature and use of the software while the district court focused its analysis on the description of the products in their registration materials. But whether the public may be confused (i.e., attribute the products to a single source) is the real focus of the multiple factor likelihood of confusion test. The district court was wrong when it focused principally on the products' similarities and matters of use (and doubly wrong when it focused exclusively on the written descriptions). On the other hand, the Board was right when it focused on the facts that the marks were identical, their functions were similar, and sophisticated purchasers were likely to believe that their sources were related. The Court reinstated the Board's findings. It considered Wisconsin's new evidence but found it not sufficient to overcome those findings and compel summary judgment in Wisconsin's favor. It therefore remanded for a trial on likelihood of confusion. The Court next considered Phoenix's counterclaims, which the district court dismissed on sovereign immunity grounds. There are two exceptions to the Eleventh Amendment's grant of sovereign immunity. The first is when Congress regulates state behavior pursuant to the Fourteenth Amendment. The second is when a state waives its immunity and consents to suit. The Court noted that the Supreme Court has already found unconstitutional the Patent Remedy Act's creation of state liability for patent infringement in Florida Prepaid. Given the similarities between the two statutes, the Court found the decision controlling. With respect to waiver, the Court first rejected the argument that Wisconsin's participation in the regulated trademark process amounted to waver, again relying on Florida Prepaid. Lastly, the Court addressed and rejected the argument that Wisconsin voluntarily waived its sovereign immunity when it chose to challenge the Court's decision by filing a suit in the district court. The Court distinguished the Supreme Court's Lapides decision, in which Georgia was not allowed to invoke sovereign immunity after it removed a case from state court. Here, Wisconsin's filing simply reflected its choice of a forum for judicial review. It did not alter the nature of the proceedings in any way.

Judge Wood agreed with the majority on the likelihood of confusion with issue and also with respect to whether Wisconsin's participation in a federal regulatory program constituted a waiver of sovereign immunity. She dissented, however, on the issue of whether Wisconsin's district court challenge to the Board’s decision constituted a waiver. The issue is not, she said, whether the state is a defendant, a plaintiff, an intervenor, or an appellant. It is, instead, the voluntariness of the decision and its consequences. Here, Wisconsin chose to file a case. Lapides controls -- Wisconsin has waived sovereign immunity. Wisconsin was not even required to appeal. It could have accepted that the Board's decision. Similarly, it could have appealed to the Federal Circuit, where Phoenix would not have been able to file a counter court. Instead, Wisconsin chose to gain a litigation advantage by filing in the district court. Just like in the Lapides case, Wisconsin was using its sovereign immunity to gain a litigation advantage. Finally, Judge Wood wrote at length suggesting that it may be time to reconsider a "commercial act" exception to the scope of sovereign immunity.

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KAHN v. BLAND (December 23, 2010)

The “Section 8” federal housing subsidy program provides rental assistance to low-income families. Although funded federally, the program is administered by local public housing agencies. Both the beneficiary families and the participating landlords must meet certain qualifications and are governed by a host of regulations. In Champaign County, Illinois, the program is run by the Housing Authority of Champaign County (HACC). In 2003, Latif Kahn, a qualified landlord with a contract with HACC, rented a subsidized apartment to Andrew Washington. At Washington' request, and allegedly with the approval of HACC, Kahn also rented some space in the building's basement to Washington outside the program. After Kahn evicted Washington in for nonpayment of rent, Washington brought the existence of this "side lease" to the HACC's executive director. The director advised Kahn that the lease was a violation of program regulations and that he was terminating Kahn's contracts and barring him from the program. Kahn was never given an opportunity to explain or appeal. The HACC sent a letter to each of Kahn's four tenants and advised them that they would have to move. In fact, however, Kahn’s contract with respect to only one of the tenants was terminated pursuant to the letter. Another contract was terminated when the contracted unit failed to pass an inspection. The other two tenants actually remained. One prospective tenant was denied an opportunity to rent an apartment from Kahn and was told by HACC that Kahn was an "undesired person." Kahn brought suit, alleging procedural and substantive due process claims against the director and a due process claim against HACC. Chief Judge McCuskey (C.D. Ill) granted the defendants' motion for judgment as a matter of law at the close of plaintiff's case. Kahn appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Tinder affirmed. Both the substantive and procedural due process claims require the identification of a property or liberty interest. The Court concluded that Kahn had not established a property interest from a) his termination from the program, b) the termination of the contracts, or c) disputes regarding the remaining contracts. First, notwithstanding his allegations, the record was clear that he was never terminated from the program. The director made threatening statements but had no authority to bar Kahn from the program and, in fact, Kahn continued to participate in the program. Second, although the HACC did refuse to enter into new contracts with Kahn, nothing in the statute or regulations entitles him to enter into new contracts. Finally, Kahn's rights with respect to his existing contracts do not raise constitutional issues. They simply give rise to possible state breach of contract claims. With respect to a liberty interest, the Court concluded that Kahn forfeited the claim -- but also concluded that the claim would not succeed. The liberty interest recognized by the Fourteenth Amendment protects a person's right to pursue an occupation, but not a specific job. Here, although the defendants' conduct may have affected Kahn 's ability to lease to certain individuals, it did not preclude him from his occupation.

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CAMPBELL v. ASTRUE (December 6, 2010)

Curtis Campbell applied for Social Security benefits in January of 2004, based principally on his mental impairments. The agency arranged for Campbell to be seen by Dr. Mason, who concluded that his problems were mostly related to his substance abuse. Another agency psychologist, Dr. Boyenga, reviewed Campbell's record and concluded that he was capable of performing simple and detailed tasks. Another mental health assessment was conducted in May of 2004. A therapist recommended evaluation, medication, and therapy and a psychiatrist diagnosed Campbell with major depression and substance abuse. In October, Campbell began a regular course of treatment with Dr. Powell. Powell saw Campbell almost 20 times over the following 15 months. Throughout that time, she assessed his Global Assessment of Functioning Scale score between 45-50, an indication of severe social impairment. Early on, she noted his excessive use of alcohol. She diagnosed Major Depressive Disorder with psychotic features. She also noted that he was not a malingerer. In mid-2005, Powell diagnosed Campbell with Bipolar Disorder, but continued to question the effect of his excessive alcohol use. Later in 2005, Campbell reported that he was no longer using alcohol. Powell’s treatment notes from that point on mention alcohol use only in the sense of her continued support of his abstinence. Her clinical assessment remained much the same. The agency conducted a hearing in January of 2006. The agency's medical expert testified that Campbell had a history of substance abuse, that he was currently using alcohol, and that he was capable of simple, repetitive work. The expert was unaware of Powell's Bipolar Disorder diagnosis. Campbell testified that he had not used alcohol for six or seven months. The ALJ found that Campbell was not disabled, siding more with the testifying expert and the other agency consultants then with Dr. Powell. Judge Darrah (N.D. Ill.) affirmed. Campbell appeals.

In their opinion, Seventh Circuit Judges Wood, Evans, and Tinder reversed and remanded. Normally, the treating doctor's opinion is entitled to controlling weight if it is adequately supported. The ALJ rejected the treating doctor's opinion for two reasons -- the absence of any significant abnormal findings in a December 2005 evaluation and Powell’s failure to determine the effect of alcohol on Campbell's symptoms. The Court found both reasons wanting. First, with respect to the December report, the Court determined that the ALJ focused on one aspect of the report and ignored other aspects of the same report as well as Powell's other reports. That, an ALJ may not do. With respect to the alcohol use, the Court noted that Powell's treatment notes suggested she had ruled out alcohol abuse. The fact that she began recommending "continued abstinence" in September and noted that his symptoms persisted makes it clear that she thought something other than alcohol abuse was the cause of his symptoms. The Court then stated that, even if the ALJ was correct in discounting the treating doctor's opinion, she is required to apply the Larson factors to determine the proper weight to give the opinion. Here, the ALJ did not address those factors -- several of which support Powell. Finally, the Court noted that the opinions the ALJ gave the greatest weight to were, on the one hand, opinions of doctors given prior to the 15 month course of treatment and, on the other hand, the opinion of the expert whose own testimony showed that he was unfamiliar with the medical records.

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JACKSON v. PARKER (December 3, 2010)

On a spring afternoon in 2006, Wayne Jackson was southbound on Chicago’s Lake Shore Drive ("Urban America's Most Beautiful Roadway") in his pickup truck. Unfortunately, his truck was licensed as a commercial vehicle and therefore prohibited on the Drive. Chicago police officer Joe Parker noticed the plates and also observed Jackson making two illegal lane changes. Parker stopped Jackson's car and then observed a windshield crack, another ordinance violation. He also administered field sobriety tests and a breathalyzer, which he claims Jackson failed. Jackson was released after approximately 12 hours at the police station. Although his arrest report lists DUI, the prosecutor later amended the charge to negligent driving. At trial, Jackson was found guilty of improper lane usage and failing to notify the state of an address change and was found not guilty of negligent driving and driving an unsafe vehicle charges. Jackson brought a § 1983 charge against Parker, claiming a Fourth Amendment false arrest violation. Jackson claimed that Parker falsified the DUI test results. He also presented evidence that Parker regularly reported such false information as part of a scheme to increase his compensation and that he was being internally investigated for his conduct. Judge Conlon (N.D. Ill.) granted summary judgment to Parker, concluding that the unlawful lane change provided sufficient probable cause for the arrest. In the face of that probable cause, Jackson could not prevail whether or not there was probable cause for a DUI arrest. Jackson appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Tinder affirmed. The Court agreed with the district court and noted that Jackson implicitly agreed as well. Parker had reason to believe that Jackson was violating the law by even being on the roadway in a commercial vehicle. Even though he was never charged with that offense, and even if he had an illicit motivation, the arrest is reasonable. Apparently recognizing that his false arrest claim was not going to survive the appeal, Jackson's counsel reconstituted his argument as a unreasonable detention rather than a false arrest. Unfortunately for Jackson, arguments that are not presented to the district court are normally forfeited on appeal unless the interests of justice require otherwise. The Court concluded that this was not such a case.

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On June 16, 2011, the Court granted a petition for panel rehearing and vacated this opinion and judgment.

COSTELLO v. GRUNDON (October 18, 2010)

Several senior Comdisco, Inc. employees participated in the company’s shared investment plan (SIP) program. Under the program: a) participants purchased Comdisco stock, b) the purchase was funded exclusively by personal loans, c) the participants executed promissory notes in their personal capacities, d) Comdisco guaranteed the loans, e) the lenders remitted the loan proceeds directly to Comdisco, f) Comdisco held the shares, g) there were several restrictions on the ability to sell the stock, and h) participants delivered a blank stock power to Comdisco. Within two years, the stock price had risen from $34.50 to $53.00. Many participants sold their shares and made a nice profit. Others, however, did not and were still holding the stock when Comdisco went into bankruptcy. The lenders settled with Comdisco on the guaranty obligation. As part of the settlement, the lenders assigned their rights under the notes to the Comdisco Litigation Trustee. The Trustee brought individual actions against the participants. He moved for summary judgment against two of the participants. The court granted the Trustee’s motion, holding that the Trustee made a prima facie case and rejecting several defenses: a) the alleged misrepresentations were expressions of legal opinion and could not support a fraud finding, b) defendants had not shown reliance, c) defendants could not assert a violation of Regulation U as a defense, and d) a negligent misrepresentation defense was not available against the Trustee. The Trustee subsequently moved for summary judgment against the remaining defendants on the same papers. Defendants raised new defenses. Judge Gettleman (N.D. Ill.) granted the Trustee’s motion, rejecting the additional defenses. The defendants appeal.

In their opinion, Judges Kanne, Rovner, and Tinder affirmed in part and vacated in part. The Court addressed each of the many arguments on appeal in turn. Regulations G and U Violations Defense: Although the Court discussed at length and questioned the district court’s treatment of Comdisco’s or the lenders’ violation of Regulation U or G, it ultimately concluded that it did not need to decide the issue. It concurred with the district court that, even if a violation existed, it did not provide an illegality defense. Relying on Bassler, Blair, and Shearson, the Court noted that the regulations were not meant to protect individual investors and a violation does not make the underlying contract illegal. Section 10(b) Illegality Defense: The Court did disagree with the district court’s treatment of defendants’ defense under § 10(b) of the Securities Exchange Act of 1934. Although the Trustee moved for summary judgment based only on the absence of a false statement, the district court granted it on the absence of scienter, raised only in the reply brief. The Court stated that the Trustee had the initial burden of identifying the basis of his request for relief – the defendants were not required to respond to other grounds, even if later raised in the reply. Although the defendants could have responded to the Trustee’s arguments or sought further discovery, they were not required to do so. Furthermore, the Court found that the district court’s requirement of a heightened “strong inference” of scienter was improper. Finally, the Court declined to itself affirm on the alternative grounds raised by the Trustee in its reply below. Section 17(a) Defense: The district court’s ruling with respect to defendants’ defense under § 17(a) of the Securities Act of 1933 was erroneous for the same reason as the ruling on § 10(b). The court improperly ruled that defendants failed to present evidence of scienter when they were under no obligation to do so at this stage of the proceedings. Fraud and Negligent Misrepresentation Set-Off Defenses: With respect to the fraud and negligent misrepresentation set-off defenses, the district court adopted the ruling and reasoning of it decision on the first summary judgment motion. There is nothing wrong with that, said the Court, except here the defendants presented a new legal argument on the fraud defense and additional evidence with respect on the negligent misrepresentation defense that the court did not consider. The Court concluded that summary judgment in the Trustee’s favor on both was error. Excuse of Non-Performance Defense: Lastly, the Court held that it was error to grant summary judgment on the excuse of non-performance defense. The defendants argued that the lenders’ non-compliance with § 17(a), § 10(b), and Regulation U amounted to a breach of contract and thus excused their performance. The Court concluded that the district court erred in granting summary judgment with respect to the §§ 17(a) and 10(b) claims – given that the Court had just vacated the summary judgments on the underlying defenses. With respect to Regulation U, however, the Court agreed that a violation would not excuse performance since the participants were not in the “zone of interest.” The Court remanded for further proceedings.

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GOODMAN v. NATIONAL SECURITY AGENCY (September 3, 2010)

Claudette Goodman was hired in August 2004 as a private security guard by the National Security Agency (National). Her initial pay was $8.25 an hour. National assigned her to an overnight shift at a housing complex. For family reasons, Goodman desired a daytime shift. She soon transferred to a different location on the more desirable dayshift. Although she was promoted to supervisor with a raise to $8.75, her employment was not without problems. National had difficulty with its payroll -- paying late, paying less than owed, bouncing checks, etc. In mid-2005, she began suspecting that National paid its male employees more than she. The owner denied it. In any event, in October 2005, she found another job at $10.00 an hour and quit her job at National. She brought suit against National under the Equal Pay Act and Title VII of the Civil Rights Act. Judge Norgle (N.D. Ill.) granted summary judgment to the defendants. Goodman appeals.

In their opinion, Judges Rovner, Sykes, and Tinder affirmed. The Court first addressed her retaliation claims under both statutes. Goodman relied on three acts in support of her claims -- that her hours were reduced, that she was demoted, and that she was reassigned. Unfortunately, the evidence did not fully support the accuracy of her claims. For example, her own testimony was that her hours did not change and that she was never actually reassigned (only threatened). To the extent it did, she failed to establish any harm. Her testimony suffered from inconsistencies and a lack of clarity and was insufficient to support a retaliation claim. Goodman's equal pay claims suffered from the same lack of clarity in the record. She offered the testimony of Michael Moore, a male supervisor, in support of the claim. Upon close examination, and adjusting for confusion about certain dates, the Court concluded that the evidence established that Goodman was in fact paid more than Moore. Obviously, that was fatal to her Equal Pay Act claim.

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GROSS v. TOWN OF CICERO (August 27, 2010)

For several years after Clarence Gross retired as a Cicero police officer, he served in a number of appointed positions in the Town's government. The Town President appointed him Chairman of the Board of Fire and Police Commissioners. As Chairman, Gross oversaw the hiring of the Town's police officers. Gross admits that he hired several officers that he deemed unqualified because he was directed to do so by the Town President. Rhonda Gross, Clarence's daughter, also served as a Cicero police officer during this time. She complained to Gross that she and other female police officers were the victims of sexual harassment. Gross approached the Town President on several occasions to discuss the harassment. On each occasion, she deflected his attempt and promised to address it later. Rhonda filed an EEOC charge. The EEOC found substantial evidence that she was the subject of sexual harassment -- the Town settled. After Rhonda filed her charge, Gross was removed from his various appointments. He complained to the Town's attorney that he was owed compensation. When he became involved as a potential witness in litigation against the Town, he claims that the attorney told him he would not get his compensation until the other litigation was resolved. Gross brought suit pursuant to § 1983 against the Town, the President, a successor President, and the Town’s attorney. He alleged First Amendment free-speech violations. The Town brought counterclaims for breach of fiduciary duty and unjust enrichment. Judge Darrah (N.D. Ill.) granted summary judgment to the defendants on Gross' claim, granted summary judgment to Gross on the unjust enrichment claim, but granted summary judgment on liability to the Town on the breach of fiduciary duty claim. The court ultimately awarded over $300,000 on the claim after a bench trial, representing Gross' entire salary for the years in question.

In their opinion, Judges Cudahy, Williams, and Tinder affirmed in part and reversed and remanded in part. The Court first addressed Gross' First Amendment retaliation claims, specifically the first prong of the retaliation inquiry -- whether his speech was constitutionally protected. Three different episodes of retaliation were alleged: a) his sexual harassment complaints on behalf of Rhonda to the Town President, b) his instruction to Rhonda to file an EEOC charge, and c) his conversations with the plaintiffs’ lawyers in another case against the Town. The Court concluded that none of the episodes constituted protected speech: a) his complaints to the Town President about sexual harassment (to the extent there was even any actual content to the speech, as opposed to a mere request to discuss) were not matters of public concern but merely a private grievance, b) any encouragement to Rhonda to file the EEOC charge was not speech on a matter of public concern but, again, a mere private matter (the record also contains no evidence that any defendant was aware of this speech, precluding a finding of causation), and c) there is no evidence in the record to establish that a conversation with plaintiffs' lawyers in another case could constitute protected speech. The Court therefore affirmed the district court's finding in favor of the defendants on Gross’ First Amendment claim. The Court next addressed the Town’s breach of fiduciary duty claim. The district court noted that an Illinois statute sets standards by which municipalities’ Police Boards must evaluate appointed police officers. The court held that the statute created a fiduciary duty on the part of Police Board members to exercise independent judgment. The Court disagreed. The statute does not refer to fiduciary duties and the Court was reluctant to create one. Instead, the statute merely grants authority and establishes rules for the exercise of that authority. Although it concluded that the statute did not create a duty, the Court did recognize that Gross was subject to a duty of loyalty owed by all public officials. Relying on the standard the Illinois Supreme Court stated in upholding a criminal conviction, the Court ruled that there was sufficient evidence (barely) in the record for a factfinder to conclude that Gross violated that duty. A factfinder could conclude that Gross engaged in a quid pro quo arrangement with the Town President by which he protected his and his daughter’s jobs in return for appointing unqualified police officers selected by the President. The Court remanded for additional factual findings on that issue. Its conclusion on liability did not necessitate any analysis of the damage award. Nevertheless, the Court commented that the district court’s total salary forfeiture was not correct, unless Gross was breaching his duty during his entire tenure, a conclusion not supported by the current record.

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REXAM BEVERAGE CAN CO. v. BOLGER (August 24, 2010)

Almost 50 years ago, David Bolger constructed a warehouse near Rockford, Illinois and leased it to Rexam Beverage Can Company. In 2005, Rexam attempted to renew the lease for another five-year term, but failed to give the requisite notice. Bolger advised Rexam that it would have to vacate the premises at the expiration of the lease in March of 2006. Bolger also requested that certain repairs be made. Rexam did not vacate the premises. Instead, it filed a declaratory judgment action. It also continued to pay all utilities and rent, although Bolger returned the rent checks. Eventually, Rexam found a new home, made some repairs to the Rockford warehouse, and returned possession to Bolger at the end of August, 2007. Although Rexam made significant repairs to the warehouse, it did not replace the roof as Bolger had requested. The roof repair estimate was approximately $400,000. Bolger sold the property within several months without replacing the roof. Shortly before Rexam vacated the warehouse, Judge Ashman (N.D. Ill.) ruled on the declaratory judgment action. He concluded that Rexam did not meet the lease's renewal notice requirements and that its continued occupation of the warehouse was "willful" under Illinois' Holdover Statute. After a bench trial, the court found for Bolger and awarded $1.1 million for the holdover, $400,000 for the roof replacement, $20,000 for other repairs, and over $800,000 in attorneys' fees. Rexam appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed in part and vacated and remanded in part. The Court first addressed Rexam's liability for roof repairs under the lease. Under Illinois law, the lease is like any other contract and, if unambiguous, will be applied according to its terms. Using that analysis, the Court concluded that the lease language ("Lessor shall have no obligation with respect to the maintenance and repair . . .” and "Lessee shall be solely responsible . . . for keeping all of the [buildings] in good condition, order and repair, including all structural and extraordinary changes . . .") was unambiguous and placed the contractual burden of roof repairs on Rexam. With respect to damages for the roof, which the district court fixed at the estimated repair costs, the Court noted that Illinois law limits damages in such a situation to the diminution in property value. If the repair cost exceeds diminution in value, only the latter is awarded. The district court was presented with conflicting evidence on this issue and determined that the two measurements of damages were equal. The Court found no clear error. The Court turned to the award of damages under the Holdover Statute. It first concluded that there was no clear error in the district court's factual finding that the holdover was willful. Although the statute does not define willful, the Court relied on an intermediate Illinois case that rejected a "bad faith" test and instead adopted a test that excuses a tenant who remains in possession for a "colorably justifiable" reason. The Court agreed with the district court's conclusion that Rexam's holdover was not justifiable. With respect to damages, the statute assesses a penalty of "double the yearly value of the lands." The district court based its award on expert testimony establishing the monthly gross rental rate of the warehouse. The Court concluded that the use of the gross rental rate to measure damages was incorrect. Relying on the plain language of the statute, the intent of the legislation, and the dictionary definitions of "annual value" and "land," the Court concluded that holdover damages should be based on net rental value instead of gross rental value. The Court remanded for a determination of net rental value. Finally, the Court turned to the award of attorneys’ fees. Litigants in Illinois are generally responsible for their own attorneys' fees unless a statute or contract provides otherwise. The Court agreed with the district court's conclusion that the lease in question provided a basis for Bolger to recover fees associated with the repair issues but not the holdover issue. Fees for the holdover issue were not covered because the fee provision was limited to claims arising during the lease term. By its very nature, the holdover claim did not arise during of the lease term. The Court next rejected Rexam's argument that Bolger should be limited to recovering fees on those repair claims on which he was successful. The language of the lease's fee provision did not require success. With respect to the district court's efforts to disentangle fees associated with the repair issues and the holdover issues, the Court found no abuse of discretion although it did not endorse the district court's rather superficial approach.

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YOUNG v. VERIZON'S BELL ATLANTIC CASH BALANCE PLAN (AUGUST 10, 2010)

In 1996, Bell Atlantic replaced its Bell Atlantic Management Pension Plan, a defined annuity pension plan, with the Bell Atlantic Cash Balance Plan. The old pension plan included a lump sum option for certain employees that used an enhanced discount rate. The new Plan contained provision for converting employees' benefits from the pension plan to the new Plan. One key to the conversion was an employee's "transition factor." The transition factor was a multiplier that increased as an employee's age and years of service increased. Unfortunately for Bell Atlantic, the Plan's formula for computing an employee's opening balance contained the transition factor twice. The Plan Summary and all communications to employees described the formula correctly -- using the transition factor only once. The company also recognized the error and corrected it in a 1998 version of the Plan. Cynthia Young retired in 1997 after 32 years of service. After receiving her lump sum benefit, Young sought administrative review. She made two claims: that the company failed to apply the transition factor twice and that the company improperly applied the enhanced discount rate from the earlier pension plan. The company denied Young's claim. Young filed suit pursuant to ERISA § 502(a). The company counterclaimed for equitable reformation to correct the "scrivener's error." Magistrate Judge Denlow (N.D. Ill.) upheld the company's denial of the discount rate claim as not arbitrary and capricious and granted the equitable reformation counterclaim. Young appeals.

In their opinion, Judges Bauer, Flaum, and Tinder affirmed. The Court first addressed both party's statute of limitations arguments. The parties and the Court agreed that Pennsylvania's four-year limitations period applies. At issue was when the claims accrued. The Court concluded that the complaint and counterclaims were both timely. Young's claim did not accrue until she had a "clear repudiation" of her demand, which occurred in 2005. Although the company knew about the drafting mistake in 1997, the Court concluded that its claim for reformation did not accrue at that time. It was not on notice of the need to reform because it had always treated the second transition factor inclusion as a mistake. It paid benefits and communicated with its employees on that basis. It corrected the mistake and no one complained until Young brought suit. On the merits, the Court noted that § 502(a)(3) of ERISA permits "appropriate equitable relief." Although the Court has never addressed the propriety of equitable reformation, other circuits have and have either concluded that it is available or at least not foreclosed. Relying on those cases and the Court's own cases on ambiguous plan language, the Court concluded that equitable reformation is permitted when there is clear and convincing evidence of a scrivener’s error that does not reflect participants' reasonable expectations. The Court found such evidence present here. It relied on the drafting history, the communications and course of dealing between the company and its employees, the plan statements to participants, and the lack of any complaint until Young. The Court then considered and rejected the traditional equitable defenses raised by Young (good faith, unclean hands, and laches). Finally, the Court used principles of contract construction and interpretation, particularly that specific provisions control general provision, to reject Young's enhanced discount rate claim. The Court found that the most reasonable reading of the Plan required the enhanced rate.

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SMITH v. SIPI, LLC (July 27, 2010)

Keith and Dawn Smith lived in their Joliet, Illinois home for years. When Dawn inherited title to the home in 2004, it was subject to a state tax lien. Pursuant to Illinois law, it was auctioned off at a tax sale in late 2001. SIPI, LLC was the successful bidder and received a certificate of purchase. Under Illinois tax sale procedure, the sale is followed by a redemption period, during which the owner may redeem the property. If it is not redeemed, the buyer can obtain a tax deed to the property. The tax deed must be recorded within one year after the expiration of the redemption period. The Smiths' redemption period expired on November 1, 2004. SIPI acquired the deed in April of 2005 and recorded the deed in May of 2005. In April 2007, the Smiths petitioned for bankruptcy and filed an adversary complaint against SIPI to avoid the tax sale as a fraudulent transfer under § 548 of the Bankruptcy Code. The bankruptcy court concluded that the tax sale did not occur within the two year "look back period" because the sale was perfected when the redemption period expired in November 2004. Judge Guzman (N.D. Ill.) affirmed. The Smiths appeal.

In their opinion, Judges Williams, Sykes, and Tinder reversed and remanded. The Court noted that the only real issue in the case was whether the buyer’s interest in the property was "perfected" under bankruptcy law before or after the outer limit of the look back period -- April 13, 2005. The redemption period expired four months earlier but the tax deed was issued two days later and recorded 36 days later. Under § 548, a buyer’s interest is perfected when the owners can no longer convey a superior interest to a bona fide purchaser. The Court looked to the Illinois Property Tax Code for guidance, since the issue was one of first impression for the Court. The Court concluded that the statute considers the time of recording to be the point where the buyer's rights are superior to a bona fide purchaser. The Court did express some concern whether a bona fide purchaser could even exist after a tax sale, given the extensive public proceedings associated with tax sales and the "without notice" requirement of a bona fide purchaser. Ultimately, the Court was comfortable in rejecting the notion that a bona fide purchaser could never prevail after a tax sale.

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INDIA BREWERIES v. MILLER BREWING CO. (July 21, 2010)

India Breweries, Inc. (IBI) is a "virtual brewer." On the one hand, it acquires the rights to brew a beer. On the other hand, it partners with other companies to actually brew and distribute the beer. One of those companies was Mohan Meakin, an Indian brewer with whom it entered into a joint venture to brew and distribute beer in India. IBI then entered into an agreement with Miller Brewing Company pursuant to which it hoped to market Miller's brands in India. The agreement required IBI to get written approval from Miller before it began commercial brewing at any brewery. If the brewing was going to take place with a contract brewer, the agreement required IBI to obtain Miller's approval of its contractual relationship as well. IBI proposed two breweries to Miller. A Miller team visited the breweries and advised IBI that they did not meet Miller's requirements. IBI continued to explore other options with limited success. On a few occasions, it sent Miller equipment lists from potential brewing partners. On each occasion, Miller concluded that the facilities did not meet its requirements. It refused to actually visit and inspect any facility until it received assurances of adequate equipment and specifications. IBI filed suit for breach of contract. It claimed that Miller was required to inspect each brewery it proffered. Miller counterclaimed for fraudulent inducement and negligent misrepresentation. Judge Clevert (E.D. Wis.) granted summary judgment to Miller on IBI's claim but denied summary judgment on the counterclaim. The parties then stipulated to a dismissal without prejudice of the counterclaim, under which Miller agreed not to refile it unless IBI was successful in its appeal. IBI appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder affirmed. The Court first addressed its appellate jurisdiction. It noted that the stipulation of the parties that permitted the refiling of the counterclaim in certain circumstances destroyed the finality of the district court's order. Without finality, there is no appellate jurisdiction. However, because Miller agreed to an unconditional dismissal when pressed at oral argument, the finality requirement is satisfied and the Court proceeded to the merits. On the merits, the Court found for Miller. It rejected IBI's argument that the contract was ambiguous and could be read to require Miller to inspect any brewery it proffered. In fact, the Court found that interpretation "patently unreasonable." First, that requirement would not be rational since it would require Miller to go all the way to India to inspect a brewery that it already knew would not meet its requirements. Second, since Miller could reject a nonaffiliated brewer for any or no reason, requiring inspection in those circumstances would also be irrational. The Court also noted that the contract required Miller's approval of the contractual relationship with nonaffiliated brewers. Since Miller had not yet had an opportunity to review those relationships, it could also reject the brewers on that ground. Finally, although the Court conceded that Wisconsin law implies a duty of good faith in any contractual relationship, it found that Miller did not breach that duty.

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IN RE: MCKINNEY (June 23, 2010)

When Lonnie McKinney fell behind on the property taxes for his Peoria County duplex, the county sold the tax debt to Salta Group. McKinney had two years within which to pay the debt after the sale. He did not and was notified that the property had been sold. He still had several months to redeem the property before Salta Group would receive a tax deed to the property. One day before the end of the redemption period, McKinney filed for bankruptcy. He proposed a bankruptcy plan that allowed an additional five years to pay off the tax debt. Salta Group filed an objection to the plan. The bankruptcy court denied the objection and Judge McDade (C.D. Ill.) affirmed. Salta Group appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Tinder dismissed for want of jurisdiction. The Court first addressed its -- and the district court's -- jurisdiction. The jurisdictional statute grants jurisdiction over "final" decisions and orders of the bankruptcy court. The Court conceded that the concept of finality is murkier in the bankruptcy arena than it is elsewhere because of the frequent existence of numerous discrete disputes within a single bankruptcy case. The test the Court applied was whether the order resolves a dispute that, but for the bankruptcy, would have been a discrete lawsuit. It concluded that Salta’s claim was not such a dispute. The order did not resolve any part of Salta's claim -- it merely resolved one issue.

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JUNKERT v. MASSEY (June 21, 2010)

Roger Massey, the Sheriff of the DeWitt County, Illinois, began an investigation into a series of local burglaries. His investigation led him to Richard Baker. Baker provided much information to the police about his activities and those of Jeffrey McCall: a) he received stolen guns from McCall, b) he sold drugs with McCall, c) he named his cocaine source, d) McCall told him that McCall's attorney (a female) used cocaine, and e) McCall told him that he paid his attorney with stolen laptops. Massey corroborated some of the information from Baker. Additional investigation established that McCall's lawyer was Dodie Junkert, the only female lawyer in the county. Massey used the information from Baker in preparing an affidavit for a search warrant for Junkert's office and residence. When Massey informed Junkert of the existence of the search warrant, she admitted receiving the stolen laptops from McCall and arranged for their return. The police searched her office and home anyway. They found no computers but did find evidence of drug use. Junkert brought an action under § 1983, alleging that the Massey’s lack of probable cause for the search warrant violated her Fourth Amendment rights. A jury found in favor of Massey. Junkert appeals from Judge Mills' (C.D. Ill.) denial of her motion for judgment as a matter of law.

In their opinion, Judges Bauer, Evans, and Tinder affirmed. The Court addressed whether the affidavit provided probable cause for the search, applying a totality of the circumstances test. It focused on the degree of cooperation, the extent of personal observation, the amount of detail, the time interval, and whether the affiant appeared before the judge. The Court found the affidavit severely lacking -- it lacked personal observation, it specified no time period, and the affiant did not personally appear. Even with the other positive aspects of the affidavit, the Court found it "difficult to conclude" that the affidavit provided a substantial basis for the search. Without actually deciding whether probable cause existed, however, the Court addressed qualified immunity. It noted that Massey is personally liable for damages only if courts have held that a materially similar affidavit lacked probable cause or if the affidavit was so lacking that any reasonable officer would have known it lacked probable cause. The Court found neither. Notwithstanding the weaknesses in the affidavit, the Court concluded that there were enough indicia of probable cause to support Massey’s reliance on it. Massey was therefore entitled to a qualified immunity defense.

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SEIFERT v. ALEXANDER (June 14, 2010)

The State of Wisconsin has two sets (primary and general) of elections during its election years. Non-partisan officeholders, including judges and many county and municipal officers, are elected in the spring. Candidates for these positions are slated without party affiliation. In the fall, elections are held for partisan officeholders, including the sheriff and district attorney. In 2004, the Wisconsin Supreme Court amended the Wisconsin Code of Judicial Conduct to prohibit a judge or judicial candidate from a) being a member of any political party, b) endorsing or speaking on behalf of another candidate, and c) personally soliciting campaign contributions. John Siefert has been a circuit court judge in Wisconsin since 1999. Siefert would like to join the Democratic Party, endorse partisan candidates for office, and solicit contributions for his upcoming campaign. He brought suit pursuant to § 1983 against the members of the Wisconsin Judicial Commission for injunctive and declaratory relief. Judge Crabb (W.D. Wis.) declared the rules unconstitutional and enjoined their enforcement. The Commission appeals.

In their opinion, Judges Flaum, Rovner (dissenting in part), and Tinder affirmed in part and reversed in part. The Court described its task as an attempt to "harmonize . . . two strains of First Amendment law." On the one hand, in White I, the Supreme Court applied strict scrutiny in striking down a code of conduct that prohibited judges from taking positions on legal and political issues. On the other hand, the Supreme Court applied the less stringent Pickering standard in Letter Carriers and Garcetti and balanced the public employee's right to speak against the government's interests. The Court addressed each prohibition separately. With respect to the party membership prohibition, the Court found it content-based and applied strict scrutiny. Although a state does have a compelling interest in the lack of bias in its judiciary, the Court found that the prohibition was not narrowly tailored to serve that interest and struck it down. With respect to the partisan candidate endorsement prohibition, the Court noted a distinction between an endorsement of another and speech regarding a judge's own views. The distinction supported the application of a balancing approach instead of strict scrutiny. In balancing the state's interest in a fair judiciary with the judiciary's interest in endorsing candidates, the Court concluded that the state's interest prevailed. The Court did express its concern that the prohibition only applied to partisan elections. That under-inclusiveness could have invalidated the prohibition under a strict scrutiny approach – but the Court concluded that it did not under the balancing approach. Finally, with respect to the personal solicitation prohibition, the Court noted that Buckley created two approaches. Candidates' spending restrictions are met with strict scrutiny -- candidates' contributions restrictions are met with a less rigorous standard. The personal solicitation prohibition was a contribution restriction and therefore analyzed under the less rigorous approach. The Court found a strong state interest in protecting against the appearance of a quid pro quo that a direct personal solicitation might create. Even though the prohibition does not prevent a candidate from a reviewing a contributor list and applies even to family members, where the risk of a quid pro quo is remote, the Court found that the regulation was closely enough drawn to the state's interest to be constitutional.

Judge Rovner agreed with the panel in its treatment of the party membership restriction and the personal solicitation restriction. She dissented, however, from its treatment of the partisan candidate endorsement restriction. Her fundamental disagreement was with the majority's application of a balancing test. In her view, White I requires the application of a strict scrutiny standard in evaluating a content-based restriction. Under a strict scrutiny approach, the under-inclusiveness noted by the majority opinion is fatal to its constitutionality.

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LEONARD v. EASTERN ILLINOIS UNIVERSITY (May 26, 2010)

For almost 20 years, Robert Leonard worked in a janitorial position at Eastern Illinois University. Leonard was of Native American descent and was very outspoken and active on those issues. In particular, Leonard was very critical of the use by the University of Illinois (since discontinued) of a Native American mascot called “Chief Illiniwek.” In March 2005, Leonard applied for a promotion. He interviewed before a panel of six supervisors, two of whom wore shirts picturing Chief Illiniwek. Although the University of Illinois basketball team was scheduled to play a collegiate championship game that very night, Leonard was offended by the shirts and believed them to be a statement regarding Leonard's criticism of the mascot. Neither Leonard nor any other applicant was promoted as a result of the March 2005 interviews. In April, Leonard complained to the school's Office of Civil Rights. As a result of his complaint, the supervisors were requested not to wear clothing depicting the Chief Illiniwek when dealing with Leonard. In October of 2005, Leonard and seven others applied for another promotion. They all interviewed before the same six supervisors without incident. The University promoted the three applicants who scored the highest -- Leonard was seventh of the eight. Leonard brought suit against the University under Title VII. He alleged that the University failed to promote him in retaliation for his earlier complaint. Judge McCuskey (C.D. Ill.) granted summary judgment to the University. Leonard appeals.

In their opinion, Judges Bauer, Evans, and Tinder affirmed. Leonard had proceeded in the trial court under the direct method of proof, which requires him to prove, among other things, a causal connection between a protected activity and an adverse job action. The Court found no such evidence. There was no evidence that the supervisors reacted negatively to his complaint or that the results of the scoring showed any bias. All six supervisors scored Leonard in the bottom half of the candidates. A causal link cannot be inferred from "suspicious timing" because of the six-month gap between the complaint and the interviews. The Court also rejected Leonard's attempt to use 10-year-old statements of allegedly anti-Native American bias to support an inference of retaliation.

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FEDERAL TRADE COMMISSION v. TRUDEAU (May 20, 2010)

Kevin Trudeau was found guilty of civil contempt of court for violating the terms of a consent order. In 2009, the Seventh Circuit affirmed Judge Gettleman's (N.D. Ill) finding of contempt (see intheiropinion) but remanded for reconsideration of a nearly $40 million penalty. During the course of the remand proceedings, Trudeau instigated an e-mail barrage on Judge Gettleman. He asked his radio listeners, his website viewers, and his e-mail list readers to send e-mails directly to the judge in support of his cause. Most of the e-mails were polite and innocuous -- some, however, were at least mildly threatening. In all, the judge received over 300 e-mails. The next afternoon, the judge found Trudeau guilty of criminal contempt and sentenced him to 30 days of incarceration. Trudeau appeals.

In their opinion, Judges Manion, Rovner, and Tinder vacated and remanded. Substantively, a judge has the authority to punish "misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice" under 18 U.S.C. § 401. Procedurally, Rule 42(a) of the Federal Rules of Criminal Procedure provides the framework for a typical finding of criminal contempt. Here, however, the court used the summary procedures of Rule 42(b). A summary finding of direct criminal contempt under Rule 42(b) requires that the contemptuous behavior occur in the presence of the judge. The fundamental principle that a court should use the least possible power in a contempt case requires not only that the contempt finding is permissible under Rule 42(b) but that there is also a compelling reason to invoke it. The Court found neither present here. The conduct that he punished did not occur in his physical presence. In fact, he had to summon Trudeau to court to impose the penalty. The Court also found no evidence in the record of a disruption of the court's ability to function or other compelling reason to use the summary procedures. The Court declined to address Trudeau's arguments that his conduct did not meet the "presence" requirement of § 401 and that it was protected by the First Amendment.

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IN RE: REPOSITORY TECHNOLOGIES, INC. (April 12, 2010)

Repository Technologies, Inc. ("RTI") was a software supplier. When it needed additional financing, William Nelson, a minority shareholder, offered to help. He eventually loaned almost $2 million to RTI. Once he sent a notice of default, however, RTI filed for Chapter 11 reorganization. In the bankruptcy proceeding, RTI attempted, unsuccessfully, to recharacterize the entire Nelson debt as equity. Although the bankruptcy court refused to dismiss the case on the ground it was filed in bad faith, it did dismiss it on the ground that RTI was unable to reorganize. The district court affirmed the bankruptcy court and denied Nelson's request to strike, as dictum, the finding that the case had not been filed in bad faith. Nelson appeals -- RTI cross appeals. (Meanwhile, Nelson also filed a complaint in federal court seeking damages for the breach of the loan agreement. The district court froze RTI's assets pending resolution of the case, but not before RTI paid $100,000 to its bankruptcy lawyers. The court also appointed a receiver who transferred all of RTI's assets to Nelson as the successful bidder at a UCC sale. The court approved the sale and dismissed the claims without prejudice.)

Nelson also brought suit, in state court, against RTI's lawyers. He alleged that the lawyers conspired with RTI to file the bankruptcy case to enrich themselves, that they tortiously interfered with his loan agreement with RTI, and that they abused the bankruptcy process. The defendants removed. The district court denied remand, even after Nelson withdrew his "abuse of the bankruptcy process" count. The court then, relying on the district court’s finding in the bankruptcy case that the bankruptcy case was not filed in bad faith, dismissed the abuse of process claim with prejudice. The defendants moved to dismiss the rest of the complaint on the grounds that the entirety of the complaint was based on an abuse of the bankruptcy process. The district court, however, concluded that some state claims remained and remanded to state court. The defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Tinder vacated and remanded with instructions to dismiss in the bankruptcy court appeal and reversed and remanded in the district court appeal. First addressing the appeal of the bankruptcy court decision, the Court concluded that the case was moot. The district court, in an order not appealed, approved the sale of all of RTI's assets. An appellate review of the bankruptcy court's decision could therefore not provide any meaningful relief. Although the Court agreed with Nelson that the bankruptcy court's statement about the good faith filing was dictum, it declined to entertain the argument since one cannot appeal dictum. The Court therefore vacated the judgment of the district court and remanded with instructions to dismiss the appeal from the bankruptcy court as moot.

With respect to the appeal of the district court case, the Court also began with a discussion of its jurisdiction. The defendants had removed on three alternate grounds: bankruptcy jurisdiction, diversity jurisdiction, and complete preemption. The district court relied on its bankruptcy jurisdiction to keep the case. The Court noted that district courts have original jurisdiction of proceedings "arising in or related to" cases under title 11. The Court agreed with the district court that the claims in the case were predicated on the lawyers' participation in the bankruptcy case and therefore met the "arising in" jurisdiction. Even the pre-petition conduct alleged in the complaint was related to the claims of abuse of process. Before reaching the merits of the remand, however, the Court concluded that it also had to address the existence of jurisdiction under the alternate grounds argued -- diversity jurisdiction and complete preemption – since the existence of any federal jurisdiction ground would prohibit a remand. As to the former, the defendants earlier conceded that diversity jurisdiction could not be a basis for the original removal because of the "forum defendant rule." The defendants did not preserve the argument that diversity jurisdiction could be used to keep the case in federal court, notwithstanding the “forum defendant rule, since the original removal was on other, proper grounds that have now been eliminated. The court therefore did not reach that "interesting question." With respect to complete preemption, the Court noted that complete preemption requires the existence of a federal cause of action that can substitute for the state action and provide recovery. Here, the lack of a federal claim that could substitute for Nelson's civil conspiracy and tortious interference claims illustrates the absence of complete preemption. The district court therefore did not have an independent ground of federal jurisdiction and had discretion to remand the supplemental state claims. On the merits of the remand, the Court recognized the usual practice to dismiss supplemental state claims if federal claims are dismissed before trial and conceded that it rarely interferes with a district court's discretion in this area. However, the discretion is not absolute. Here, the state claims are based on the defendants' participation in the bankruptcy case and are inseparable from the dismissed federal claims. When state claims are so entangled with the dismissed federal claims, the district court should retain supplemental jurisdiction. The fact that the claims are so interrelated and entangled might suggest that the state law claims should be dismissed as well. Although conceding the logic of that point, the Court added that the district court's reliance on the bankruptcy court's dictum in dismissing the federal claim was flawed. Dictum has no preclusive effect. The state claims should be resolved, said the Court, without reference to that dictum.

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MILLER v. HERMAN (March 25, 2010)

John Miller and his wife entered into an oral agreement with James Herman and his company to build the Millers a new home in Lakemoor, Illinois. As part of the construction, Herman purchased and installed windows made by Pella Products. According to Miller, the windows leaked from the time of their installation. Herman provided some additional caulking and Pella inspectors reinstalled one of the windows – but nothing helped. Miller filed an eight-count complaint against Herman and Pella in federal court. The federal claims were breach of warranty claims pursuant to the Magnuson-Moss Warranty -- Federal Trade Commission Improvement Act (the “Act”). In effect, the Act provides a federal forum to consumers for breach of warranty claims. Miller also pleaded state law counts for breach of contract, breach of implied warranty of habitability, common law fraud, and a violation of the Illinois consumer fraud act. Herman moved to dismiss the federal claims for lack of subject matter jurisdiction, contending that the fact that the windows were not "consumer-products" under by the Act deprived the court of jurisdiction. Pella filed a motion for summary judgment, also contending that the windows were not "consumer-products," but casting its argument as Miller’s inability to satisfy the elements of the claim as opposed to a failure of jurisdiction. Miller filed a consolidated response to the motions. The district court concluded that it lacked subject matter jurisdiction and granted the motion to dismiss. Miller appeals.

In their opinion, Judges Bauer, Manion, and Tinder affirmed, as modified, the dismissal of the federal counts and vacated and remanded the dismissal of the state law claims. The Court first addressed the jurisdiction versus merits confusion below -- whether, if the windows are not covered by the Act, the court lacks jurisdiction or the plaintiff simply loses on the merits. The Court recited the Supreme Court's "bright line" test. In Arbaugh, the Supreme Court stated that a statutory limitation should be treated as non-jurisdictional unless Congress clearly states that it is jurisdictional. The "consumer product" language in the Act is not part of the jurisdictional section or otherwise clearly treated as jurisdictional. The Court concluded that it was therefore not facing a jurisdictional limitation. On the merits, the central issue in both the motion to dismiss and motion for summary judgment is whether the windows were "consumer-products" under the Act. Finding the statutory definition both expansive and "somewhat hazy," the Court directed its attention to the FTC interpretations of the Act. It decided to give the interpretations a significant degree of deference since they were issued by the administering agency, they were issued using notice and comment procedures, they have stood the test of time, and they are based on the legislative history of the Act. The parties argued competing interpretations. Miller relied on 16 C.F.R. § 700.1(e), particularly on language that stated that construction products are "consumer products" when they are sold over-the-counter. The defendants, on the other hand, relied on 16 C.F.R. § 700.1(f), and specifically on language stating that construction materials are not "consumer products" when a consumer enters into a contract with a builder to construct a new home. Although the Court conceded that the FTC interpretations cited by the parties drew a fine line between what is and what is not a consumer product, it saw no reason to not respect the line. Following the interpretations, and the application of those interpretations by other courts, the Court concluded that the windows were not "consumer-products" within the meaning of the Act. As modified to reflect the merits rather than jurisdictional dismissal, the Court affirmed the dismissal of the federal counts. The district court dismissed the state law claims because it thought it had to, since it concluded that it lacked subject matter jurisdiction. Although the general rule is that a federal court will not retain wholly state law claims once federal claims are dismissed before trial, it is not required to. Since the district court did not even consider its authority to retain the state law claims, the Court reversed and remanded for that purpose. 

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KIM v. CARTER'S INC. (March 15, 2010)

Su Yeun Kim and Gina Polubinski purchased children's clothing at several different Carter's stores in Illinois over a period of time. Articles of clothing in the stores had individual price tags. Frequently, however, Carter's displayed signs announcing discounts off individual prices. Kim and Polubinski each filed separate class actions, alleging that any savings were fictitious because the prices listed were artificially inflated . The complaints alleged breach of contract and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The district court granted Carter’s motion to dismiss the complaints. Kim and Polubinski appeal.

In their opinion, Judges Bauer, Kanne, and Tinder affirmed. With respect to the breach of contract count, the Court concluded that Carter's fulfilled its contractual obligations. It provided articles of clothing to the plaintiffs at an agreed upon price. The Court rejected plaintiffs' interpretation that the sales contract required Carter's to apply the discount to an undisclosed, fair price instead of the tag price. With respect to the statutory claim, however, the Court found that the allegations of the complaints did sufficiently allege a violation. However, the Act requires a private party to show "actual damage." Here, the plaintiffs agreed to pay a certain price for the clothing. They have not alleged that the clothing is actually worth less than what they paid or that they could have purchased it elsewhere for less. Having concluded that the plaintiffs suffered no actual pecuniary harm, the Court held that they could not state a claim under the Act.

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MINIX v. CANARECCI (February 26, 2010)

While on leave from a mental hospital where he was a patient, Gregory Zick was arrested and incarcerated in the St. Joseph County Jail. The jail provided medical and mental health services through contracts with third-party vendors Memorial Home Care and Madison Center. Jail personnel became aware during Zick's booking that he had attempted suicide in the past and was taking medications to treat his suicidal thoughts. Zick was originally put in medical segregation and on suicide watch. He was transferred into the general population, however, a few days later after he denied having suicidal thoughts. About a month later, he was placed back in medical segregation after he refused to take his medication and a jail officer noticed a razor blade missing. Again, after a few days, he was released from medical segregation because he was alert and denied thoughts of suicide. Later that night, he hanged himself with a bed sheet. Cathy Minix, his personal representative, brought an action pursuant to § 1983 against the Sheriff, the medical providers, and several jail employees. She alleged violations of the Eighth and Fourteenth Amendments based on the defendants' display of deliberate indifference. The district court granted summary judgment to all defendants except the Sheriff. Minix then accepted an offer of judgment from the Sheriff. She appeals the summary judgment rulings in favor of Memorial Home Care and its employee Dr. David, Madison Center and its employee Christine Lonz, and the supervisor of the nursing staff, Jeanne James.

In their opinion, Judges Bauer, Kanne, and Tinder affirmed. The Court first addressed its jurisdiction, in light of the offer of judgment and its acceptance. Since the claim against the Sheriff was against him in his official capacity, and therefore could not have included punitive damages under § 1983, the punitive damage claims against the other defendants present a live controversy, even if the acceptance of the offer of judgment limits additional compensatory damages. On the merits, the Court first identified the two elements of an inadequate medical care claim under the Eighth or Fourteenth Amendment: a substantial risk to one's safety because of an objectively serious harm, and deliberate indifference to that risk. A jail suicide case automatically satisfies the first element. The second element requires that each defendant know that there is a substantial risk of suicide -- and intentionally disregard it. The Court addressed each defendant under that standard and found summary judgment proper in each case: a) Lonz was unaware of Zick’s suicidal history or thoughts, b) there was no evidence that Madison Center adopted or condoned any unconstitutional policy and there was no causal link between any Madison Center practice and the suicide, c) Zick's behavior in segregation did not provide Nurse James with actual knowledge of a substantial risk of suicide, d) Dr. David was not directly involved in Zick's treatment, and e) there was a lack of evidence that Memorial Home condoned or adopted an unconstitutional practice.

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DOE-2 v. MCLEAN COUNTY UNIT DISTRICT NO. 5  (January 22, 2010)

Jane Doe-2 was an elementary school student in the Urbana School District between 2005 and 2007. She alleges that she was sexually harassed by one of her teachers. She also alleges that: a) the same teacher was employed by the McLean County School District from 2002 to 2005, b) the teacher sexually harassed McLean County students during that time, c) McLean County school officials were aware of the harassment, and d) school officials concealed the harassment and provided a positive letter of recommendation. In fact, the teacher pleaded guilty to aggravated criminal sexual abuse of students in both school districts in 2007. Doe-2 brought suit against both school districts and district officials. The Urbana defendants settled. Against the McLean defendants, Doe-2 asserts a federal Title IX claim and a state court claim. The court dismissed the claims. Doe-2 appeals.

In their opinion, Judges Cudahy, Wood and Tinder affirmed. Although the Court recognized the existence of a private right of action under Title IX, it also noted its reluctance, pursuant to Supreme Court precedent, to expand implied statutory remedies. In order to state a Title IX claim, a victim of sexual harassment must establish that a school district had actual knowledge of the harassment and had substantial control over both the person and context of the harassment. Since the McLean defendants had no control over the teacher while he was employed in Urbana, the Court concluded that the Title IX requirements were not met. The Court also rejected Doe-2’s theory in which liability rested on the defendant's conduct while the teacher was still a McLean employee and under defendants’ control. The Court held to its requirement that the acts of harassment be under the defendants’ control. Addressing the plaintiff's state law claim of willful and wanton misconduct, the Court focused on the element of duty. One does not normally have a duty to protect another from an attack by a third person. Such a duty can sometimes arise out of a special relationship between the plaintiff and defendant. In fact, a school district sometimes does have a duty to protect its students. The Court was aware of no precedent, however, finding the existence of a duty where the student and the location of the offense were beyond the defendants' authority.

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STROITELSTVO BULGARIA LIMITED v. BULGARIAN-AMERICAN ENTERPRISE FUND (December 14, 2009)

Stroitelstvo Bulgaria Limited ("Limited") is a Bulgarian construction company. In 2005, it borrowed almost €2 million from the Bulgarian-American Credit Bank ("Bank") for a construction project. After a few months, the Bank claimed that Limited breached the loan agreement. It terminated its payments under the borrowing and asserted a right to recover almost €1 million, although less than €400,000 had been disbursed. According to Limited, the allegations of a breach were simply a pretext to put pressure on Limited to pay more for its borrowing. When the bank got a judgment in Bulgaria for almost €1 million and froze Limited’s assets, Limited agreed to compromise the claim for less than the judgment but more than they owed. They then sued Bank and its U.S. parent in U.S. court, alleging violations of RICO and the Bulgarian Obligations and Contracts Act as well as contract and tort claims. The court granted a motion to dismiss on forum non conveniens grounds. Limited appeals.

In their opinion, Judges Manion, Sykes and Tinder affirmed. In order to dismiss on forum non conveniens grounds, a court must find that there is an alternate forum that is both available and adequate. The principal issue on the appeal was whether the available Bulgarian forum was “adequate.” An adequate forum is one that provides some fair avenue for redress – not necessarily as complete or comprehensive as the U.S. forum. The Court noted that there was expert testimony regarding corruption in the Bulgarian court system. However, particularly given Bulgaria’s entry into the European Union with its requirement of a stable legal system, the Court concluded that the anecdotal evidence of corruption did not establish inadequacy. The Court also conceded that Limited would not have available the same claims in Bulgaria – particularly would have no RICO claim. It was undisputed that a breach of contract claim would lie against the Bank, and that was the heart of the complaint. The Court concluded that was enough potential for redress to meet the adequacy standard. Finally, the Court concluded that the higher filing fee in Bulgaria did not rule out the dismissal. Having concluded that the Bulgarian forum was available and adequate, the Court addressed the balancing factors. The Court found no abuse of discretion. In fact, it found the private and public interests strongly favored Bulgaria.

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SUAREZ v. TOWN OF OGDEN DUNES (September 11, 2009)

William Suarez hosted a high school graduation party on the beach behind his parents' home in Ogden Dunes, Indiana. Beer was served. Around 11:00 p.m., a local police officer happened by and noticed the activity. While warning one young man for his illegal parking, he was verbally abused by several others. Believing that the party was getting out of control, the officer left to get help. Meanwhile, Suarez ended the party, put out the bonfire and invited a small group of his friends inside to spend the night. Suarez' mother, concerned that the police may return, instructed the boys to remain upstairs. The officer returned with a bevy of squad cars. He saw that there were still several cars in the driveway, although no people were present. Suspicious that the underage drinking was continuing inside the house, the officer telephoned a local judge for a search warrant. He described the earlier scene of abuse and fairly raucous behavior. He added that there were bottles in the back yard, that a number of teenagers retreated into the house and that teenagers hiding behind couches were visible through a window of the house. He got his warrant -- they broke down the door -- they arrested Suarez and his mother. William was wrestled and pepper-sprayed during his arrest. Suarez and his mother brought this action under § 1983, alleging an unlawful search and an unlawful arrest. William also complained of excessive force. Most of the case was resolved with summary judgment in the defendants' favor. The excessive force claim against three of the officers was tried to a jury, resulting in a defense verdict. William and his mother appeal.

In their opinion, Judges Flaum, Williams and Tinder affirmed. The illegal search claim, stated the Court, depends on the existence of probable cause. Because the plaintiffs challenged the statements made by the officer to the judge, as opposed to the decision of the judge, they must show that the officer made false statements knowingly or with reckless disregard for the truth and that the statements were necessary for the determination of probable cause. The Court first considered the claim that he made false statements by implying that he actually saw the teenagers retreat into the house and by omitting the fact that almost an hour elapsed between the earlier raucous behavior and his return to the home. The Court concluded that these were not materially false statements. The officer's earlier observations combined with the fact that a number of cars were still at the house supported an inference that the party was still taking place. The Court also rejected the claim that the officer did not personally observe every fact reported to the judge. He was entitled to rely on the collective knowledge of the gathered officers. Probable cause therefore existed and the search was lawful. The existence of probable cause for the search disposes of William's unlawful arrest claim. As for his mother's, the officers had reason to believe that she was permitting minors to consume alcohol in her home, a violation of Indiana law. Her arrest, also, was lawful.

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WATERS v. CITY OF CHICAGO (September 2, 2009)

Daniel Waters was a painter in the Chicago Department of Transportation (CDOT). In 2000, he refused a request by his supervisor to participate in a political campaign. At about the same time, he twice contacted local investigative journalists. On one occasion, he complained about a bridge that he thought was in such a state of disrepair that it was a danger to the public. On the other occasion, he complained that the City was making some improvements to a piece of property and that it did not own. Several of his superiors were unhappy with his conduct. He was transferred into a job working for a supervisor for whom he had worked before several times. Their relationship was strained, at best. Within a matter of weeks, Waters had several run-ins with his supervisor and was reported multiple times for violent behavior. A deputy commissioner recommended his firing. The department did not act on the recommendation. Department policy required that Waters be given an opportunity to respond to the charges of violence before any discipline was handed out. Waters provided his side of the story -- but the department ruled that his conduct amounted to violence in the workplace. The deputy commissioner resubmitted his recommendation. A pre-termination hearing was held. Commissioner Rice, who held the only authority to fire, terminated Waters. Waters sued the City under § 1983, alleging First Amendment retaliation. A jury awarded Waters $225,000 in damages and the court awarded more than $1 million in back pay, front pay and pension benefits. The City appeals.

In their opinion, Judges Manion, Rovner and Tinder vacated, reversed and remanded. The Court stated that, under Monell, a city can be liable for a constitutional deprivation but only if it resulted from a policy or practice, or that the injury was caused by someone with final policymaking authority. Waters relied on the latter prong. Final policymaking authority comes from state and local law, though. Here, said the Court, local law gives policymaking authority to the City Council, which has delegated it to the Commissioner of Human Resources. Although the Court recognized that department commissioners do have some authority to execute existing policy, they do not have policymaking authority. Since Commissioner Rice had no such authority, municipal liability cannot be based on her actions. The Court went on to note that Waters presented no evidence that Rice’s termination was in retaliation for his exercise of his First Amendment rights. Even if she had policymaking authority, the absence of that evidence would have defeated his claim.  

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FTC v. TRUDEAU (August 27, 2009)

Kevin Trudeau is an author and a marketer, particularly in the medium of infomercials. In that capacity, he has dueled with the FTC for years. The parties entered into a Consent Order in 2004. The order, in part, prohibited Trudeau from using infomercials to advertise a product. An exception to the prohibition was that Trudeau could market publications as long as the infomercial did not misrepresent the content of the publication. The Consent Order bought a few years of peace, until 2007. That all changed with the publication of his book, Weight Loss Cure. The weight-loss program contained in the book prescribes, in part: organic six meals/day diet, enema-like procedures performed by specialists, daily hormone injections, avoidance of any medications and a host of other dietary and lifestyle restrictions. Trudeau began appearing in infomercials touting the book. He called the program “easy,” “simple,” and said that it could be completed in the home. He failed to mention many of the restrictions. The FTC sought a contempt finding against Trudeau for violating the Consent Order. The district court agreed. The FTC sought a sanction of $46 million to reimburse the purchasers of the book and a modification of the Consent Order to require a performance bond before any further infomercials. The court instead required Trudeau to disgorge $5 million in profits and banned him completely from infomercials for three years. On an FTC motion to correct a mathematical error, the court increased the monetary sanction to $37 million. Trudeau appeals.

In their opinion, Judges Ripple, Manion and Tinder affirmed in part but vacated and remanded with respect to the sanctions. On the merits of the contempt finding itself, the Court upheld the district court. It concluded that Trudeau had agreed not to misrepresent the content of the book, that he had misrepresented it in numerous ways, that the fact that the book itself described the program as “easy” did not excuse the misrepresentations, and that many of his statements were patently false. The Court then addressed the remedies. With respect to the $37 million, the Court noted that it had to be a civil, rather than a criminal, sanction since the proceedings did not have criminal sanction protections. Although a criminal sanction can simply be a fine, a civil sanction must either compensate the complainant or coerce future conduct. If the latter, it must afford an opportunity to purge. The Court concluded that the sanction was not coercive – therefore, it had to compensate. But here, the court below did not describe how it reached the figure or what was to happen to the money. The Court concluded that the court’s failure to describe the methodology it used, to adequately substantiate the award with factual findings, and to address the administration of the funds required remand. The Court deferred to the lower court on remand the exact particulars of both the methodology for computing the award and the method of distribution. The Court also rejected Trudeau’s request for additional procedural safeguards on remand. Finally, with respect to the infomercial ban, the Court concluded that it was a coercive, rather than compensatory, civil sanction and it could not stand without an opportunity to purge.

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ESKRIDGE v. COOK COUNTY (August 17, 2009)
 

Michelle Eskridge died of pneumonia after having been treated at Access Community Health Network (Access) and Stroger Hospital. Access was a U. S. Public Health Service facility and Stroger was a Cook County facility. Michelle's parents sued Access and Cook County in state court. The United States removed the case to federal court, where the case against the U.S. was dismissed for failure to exhaust Federal Tort Claims Act remedies. The court remanded the case against Cook County to state court. The Eskridges exhausted their remedies and filed a second suit in federal court against the county and the United States and dismissed the earlier suit. Later, having decided to pursue only Cook County, the Eskridges filed yet a third lawsuit, in state court, against Cook County and moved to dismiss the federal suit. Their motion was granted. Meanwhile, in state court, Cook County moved to dismiss the suit on procedural grounds. Upon realizing the merits of the County’s defense, the Eskridges filed a motion in federal court for relief from their own voluntary dismissal, claiming they intended only to dismiss the United States. The court denied the motion. They then moved for reconsideration, a motion which was considered a second Rule 60(b) motion, which was also denied. The Eskridges appeal.

In their opinion, Judges Evans, Williams and Tinder affirmed. The Court first noted its extremely deferential review. First, Rule 60(b) is itself an extraordinary remedy. Second, appellate review proceeds under an "extremely deferential" standard. Third, here, the Eskridges did not appeal from the original Rule 60(b) order but only from the denial of their request for reconsideration. On the merits, The Court noted that relief under Rule 60(b) typically involves a misunderstanding. Here, the Eskridges' attorney asked for the relief granted. The fact that he did not anticipate the actual consequences of his request does not compel the relief requested.

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JOHNSON v. SAVILLE (July 29, 2009)

For several years, Larry Johnson worked in a youth correctional facility in Illinois. When a former female inmate alleged that she and Johnson had sexual relations while she was an inmate, the Illinois Department of Corrections began an investigation. Illinois State Police Officer Karl Saville was assigned to the case. Saville gathered substantial evidence of Johnson's guilt, including several statements by the witness implicating Johnson. Saville was not aware of a prior statement by the same witness denying any sexual relations with Johnson. The State decided to prosecute Johnson. He was found not guilty in a bench trial. He later brought a § 1983 action against Saville, alleging malicious prosecution under both state and federal law. The district court granted summary judgment to Saville. Johnson appeals.

In their opinion, Judges Evans, Williams and Tinder affirmed. With respect to the state malicious prosecution claim, the Court stated that one element of the claim is the absence of probable cause. The Court found probable cause: the victim stated that she and Johnson had sexual relations, several other inmates gave statements corroborating the victim’s story, Johnson had no alibi, and the facility's records showed that Johnson had access to the victim on the date in question. The Court recognized certain disputes regarding the facts and also appreciated that the victim had, on one occasion, denied having sexual relations with Johnson. Nevertheless, it concluded that the undisputed facts created probable cause to believe that Johnson was guilty. With respect to Johnson's federal Fourth Amendment malicious prosecution claim, the Court agreed that Johnson forfeited the claim by not developing it in the district court. It rejected, on several grounds, Johnson's pleas to overlook the forfeiture.

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BOTVINIK v. RUSH UNIVERSITY MEDICAL CENTER (July 24, 2009) 

In his last year of a residency at Rush University Medical Center, Bradley Botvinik was accused of playing a prank on a female physician by sending her unwanted, sexually explicit items. Botvinik denied the charges and was never disciplined as a result. Botvinik entered into an employment agreement with a physicians’ association in Florida. The hospital at which the physicians practiced granted Botvinik temporary privileges and began processing his application for permanent privileges. Before he moved to Florida, Botvinik learned from his new employer and the hospital that the hospital had received negative evaluations of Botvinik's work and suspended his temporary privileges. Botvinik withdrew his application for privileges once he realized it was going to be denied. He filed this action against Rush and five Rush physicians. He alleged that the defendants tortiously interfered with his expectation of employment by telling the hospital about his involvement in the sex scandal. The district court granted summary judgment to the defendants. Botvinik appeals.

In their opinion, Judges Bauer, Sykes and Tinder affirmed. The Court stated that one of the elements of tortious interference in Illinois is a purposeful interference by the defendant. The Court agreed with the lower court that Botvinik failed to present evidence on this element. Four of the five defendant physicians swore that they provided no evaluation of any kind to the Florida hospital. Although one physician did speak with the hospital about Botvinik, the record is silent with respect to whether the hospital relied on anything he said in making its decision.

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BKCAP, LLC v. CAPTEC FINANCIAL TRUST 2000-1 (July 13, 2009)

Quality Dining, Inc. has several subsidiaries (the "Borrowers") that own franchise restaurants, including Burger Kings, in several states. In 1999, as part of a significant refinancing initiative, the Borrowers obtain $49 million in financing in a total of 34 separate loans. One lender’s form agreement included a penalty for prepayment. At Borrowers’ insistence, the lenders modified the notes to allow a prepayment without penalty after 10 years. The notes included a formula for computing the new penalty. Eight years later, Borrowers prepaid 21 of the notes held by two of the lenders. The parties calculated the prepayment penalty as the difference between a stream of monthly payments through year 10 at the U.S. treasury rate versus at the actual rate. The Borrowers provided notice of prepayment with respect to the remaining notes, which were held by a third lender. Their notice was contingent on the lender accepting the same prepayment penalty formula. When the lender refused to so, the Borrowers filed suit seeking a declaratory judgment that their interpretation of the penalty provision was correct. The district court granted the lender's motion for summary judgment, concluding that the contract language was unambiguous and supported the lender's interpretation. The Borrowers appeal.

In their opinion, Judges Bauer, Sykes and Tinder reversed and remanded. The Court looked to state law to provide the substantive rules for resolving the contract dispute. Here, the contracts were governed by the laws of Michigan, Indiana and Pennsylvania. The Court first applied general rules of contract interpretation consistent in all the jurisdictions. The Court first looked at the plain meaning of the contract language with the goal of determining the intent of the parties. If the language is unambiguous, it would not consider extrinsic evidence. On the other hand, if the language is ambiguous, a trier of fact must examine extrinsic evidence to determine intent. Here. although the Court found the contract language clear, it also found that applying the clear language would produce absurd results. It concluded that the prepayment premium would always be negative, a result obviously not contemplated by these rational business entities. Even clear language can be ambiguous, said the Court, if it does not make economic sense. Both the lender and the Borrowers proposed interpretations that made economic sense. The Court rejected each, however, concluding that neither found support in the actual contract language. The Court concluded that the meaning of the formula is a question of fact to be determined after consideration of extrinsic evidence.

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CREWS v. CITY OF MT. VERNON (June 2, 2009)
 

Ryan Crews is a member both of the Mount Vernon Police Department and the Army National Guard and has been so for years. His work obligations to the department and the military frequently conflict. Since 1997, however, the department has allowed Crews to adjust his work schedule by moving any weekend department shifts that conflict with his guard exercises to the regular workweek. Thus, Crews was paid for a full week's work without using vacation or other time-off. Between 2000 and 2003, the department offered the same arrangement to three additional guard members hired as police officers. Non-guard members had no comparable opportunities to reschedule workdays. When the department hired two more guard members in 2006, the department rescinded the policy. The additional guard members in the department made implementation of the policy too costly. Crews brought an action against the City under the Uniformed Services Employment and Reemployment ct ("USERRA"), alleging that the rescission of the policy denied him a benefit of employment. The district court granted summary judgment to the City, ruling that § 4316(b) did not require the City to provide scheduling benefits not generally available to members of the department not in the National Guard. Crews appeals.

In their opinion, Judges Manion, Evans and Tinder affirmed. The Court noted that USERRA contains a general anti-discrimination provision in § 4311 as well as the § 4316 requirement that service members who are on leave to fulfill their obligations are entitled to benefits generally afforded other employees on similar leave. Addressing § 4316, the Court held that Crews was entitled only to equal treatment, not to the preferential treatment the policy afforded. The Court further held, however, that § 4311 could also apply. The Court found some basis for Crews' claim in the statute's "any benefit of employment" language. It concluded, however, that the better interpretation of the statute is that a "benefit of employment" is one afforded military and non-military employees alike. Thus, Crews could not prevail under § 4311, either.

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SIMPSON v. OFFICE OF THE CHIEF JUDGE OF THE CIRCUIT COURT OF WILL COUNTY (March 23, 2009)

Laura Simpson was the Director of the River Valley Juvenile Detention Center. In late 2002, Simpson began a period of paid sick leave. During her leave, the county auditor released a report that concluded that Simpson engaged in misconduct. The auditor recommended that she be fired. The report, which was initiated before Simpson went on leave and was initially focused on another county employee, concluded that Simpson a) allowed a psychologist under her authority to defraud the county, b) maintained an improper relationship with a juvenile detainee, and c) acted negligently in handling an attempted suicide. The Chief Judge fired Simpson. Simpson brought an action for interference with her FMLA rights and for retaliation. The district court granted summary judgment for the defendants. Simpson appeals.

In their opinion, Judges Ripple, Kanne and Tinder affirmed. On the interference claim, the Court noted that the only element in dispute was whether the defendants denied Simpson a benefit of the FMLA. The FMLA does not require an employer to reinstate an employee after leave if he would have terminated her regardless of whether she took the leave. The Court concluded that Simpson failed to provide any evidence that the termination of her employment was related to her leave. The Chief Judge relied on the conclusions contained in the audit report and its recommendation to terminate Simpson's employment. The Court addressed Simpson’s FMLA discrimination claim under both the direct and indirect methods. The Court concluded that the evidence did not support a retaliation claim, for much the same reason that it did not support an interference claim.
 

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NELMS V. ASTRUE (January 28, 2009)

Theodis Nelms was admitted to the hospital in May 2002. He was diagnosed with several health problems, including pneumonia, respiratory failure and inflammation of the heart. He had open-heart surgery and was released in June. Nelms applied for social security benefits. He listed as his impairments his recovery from surgery, asthma and pneumonia. The Social Security Administration twice denied him benefits. In late 2002 and again in early 2003, Nelms was seen by an agency physician. Each doctor concluded that Nelms could perform light duties. Nelms was granted a hearing on his request in 2005. Nelms did not have a lawyer. The hearing lasted twenty minutes. Nelms listed his impairments in order of severity – heart, back, legs and asthma. He described his conditions and his pain, specifically noting that his asthma strikes when he is exposed to dust, pollen, hot or cold. The ALJ concluded that Nelms was not disabled, concluding that he was able to do light work. He relied on his smooth recovery from surgery, his only sporadic pain, his slight asthma, and his capacity to do light work. The Appeals Council denied review and the district court affirmed. Nelms appeals.

In their opinion, Judges Ripple, Evans and Tinder reversed and remanded. The Court first addressed Nelms’ position that the ALJ did not adequately develop the record. Although a benefits claimant has the burden of proving disability, the ALJ has a duty, particularly when claimant is without counsel, to make sure there is a fully developed record. The ALJ must supplement the record, if necessary. The ALJ has quite a bit of leeway in a determination of the completeness of the record. Here, the Court noted, the record was almost silent on Nelms’ medical progress from 2003 – 2005. Nelms filed an appendix of medical records from those years which had not been before the ALJ. The documents describe a fairly serious deterioration of Nelms’ health in several respects. In the Court’s view, they support a conclusion that the ALJ would have found Nelms disabled had he seen the records. The absence of the records and the ALJ’s failure to probe Nelms about his more recent treatment led to the conclusion that the decision was not supported by substantial evidence. The Court rejected Nelms’ alternative arguments that the ALJ failed to consider the combined effect of his impairments and that the ALJ was required to enlist the aid of a vocational expert.

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AARON v. MAHL (December 18, 2008)

Jim Aaron and Susan Scott (f/k/a/ Mahl) were cohabiting lovers in the 1990s until Aaron left Scott. At about the same time that Aaron left, Scott was sued by her former law firm for embezzlement. The firm obtained a judgment of more than a million dollars against Scott that they then assigned to Aaron. Aaron has been attempting to collect the judgment for years, following Scott from California to Indiana to South Carolina. Aaron found some assets in Indiana in a Merrill Lynch account. A state court ordered Merrill Lynch not to transfer or dispose of the assets. Aaron nevertheless obtained a writ of execution, with which Merrill Lynch refused to comply. Scott moved to quash the writ. Aaron filed suit in district court to enforce the writ and require Merrill Lynch to turn over the funds. Merrill Lynch counterclaimed and also filed for interpleader against Aaron and Scott. At Scott’s request, the court stayed the suit pending the state court’s consideration of her motion to quash the writ. The state court quashed the writ, an order upheld on appeal. The district court lifted the stay and granted Merrill Lynch summary judgment on its interpleader claims, entered final judgment pursuant to FRCP 54(b), and awarded attorney’s fees from the interpleader stake. Scott appeals from both the grant of interpleader and the award of attorney fees.

In their opinion, Judges Bauer, Wood and Tinder affirmed. Interpleader, said the Court, is used when a stakeholder is exposed to double liability or must litigate conflicting claims. The stakeholder must have a “real and reasonable” fear. Scott raise two arguments in support of her assertion that Merrill Lynch’s fear was not real: 1) that res judicata bars Aaron’s claims because of the state court rulings, and 2) that Aaron’s federal complaint was frivolous. The Court found Scott’s position incredible, noting that Merrill Lynch had been embroiled for five years in what was at its core a dispute between Aaron and Scott over Scott’s assets. Merrill Lynch had been sued or threatened with suit by both of them. The Court concluded that: 1) Scott was simply wrong in her interpretation of the res judicata effects of the state court judgments, and 2) the fact that Scott proceeded under a different legal theory after the stay was lifted than before did not make the claim frivolous. Merrill Lynch had a real and reasonable fear of competing claims and was properly granted interpleader.

On the issue of attorney fees, the Court rejected Scott’s argument that the fees should not have been awarded out of the stake while she was appealing the very order granting interpleader. Its decision on that issue rendered her argument moot. As for her claim that fees should have been charged against Aaron, the Court stated that the trial court had discretion to order that attorney’s fees be paid to a disinterested stakeholder out of the stake itself.

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UNIVERSITY OF CHICAGO v. UNITED STATES (October 29, 2008)

The University of Chicago (“the University”) is an Illinois not-for-profit corporation and one of the world’s foremost universities. It maintains two separate retirement plans for employees. Highly compensated and academic employees are covered by the Contributory Retirement Plan (“CRP”). Other employees are covered by the Retirement Income Plan for Employees (“RIPE”). Employees are required to participate by contributing a percentage of their salary. The University, in turn, contributes additional amounts to each employee’s account. The University did not report, withhold, or remit FICA payroll taxes on any of the amounts contributed to the CRP or RIPE in the period 2000-2003. In 2005, the IRS assessed the University with additional FICA taxes and penalties. The University paid a portion of the assessment. The IRS assessed penalties for the University’s failure to pay the full amount. The University again paid only a portion of the assessment. The IRS denied the University’s claim for a refund. The University filed suit. The IRS filed a counterclaim for the still unpaid portions of the assessed amounts. The district court granted summary judgment to the United States. It held the University liable for all the assessed unpaid taxes and penalties. The University appeals.

In their opinion, Judges Kanne, Sykes, and Tinder affirmed. The Court started with the definition of “wages” in the Internal Revenue Code, one of its exceptions, and an exception to that exception. “Wages” includes “all remuneration for employment” but excludes payments made to an employee “under or to an annuity contract.” That exception itself has an exception for annuity contracts “made by reason of a salary reduction agreement.” The University takes the position that its payments to the CRP and RIPE are not wages, and therefore not subject to FICA, under the annuity contract exception to "wages." It also contends that the contributions are not excluded from the annuity contract exception under the “salary reduction agreement” language. The University’s position is that a salary reduction “agreement” must be a voluntary agreement by an employee to accept a reduced salary in return for the contribution to the plan. To resolve the issue, the Court considered the plain language of the exception as well as its context. It first rejected the University’s argument that the plain language of the statute and the use of the word “agreement” must lead to the single conclusion that the contribution must be voluntary. In fact, the Court found that the plain language was more closely aligned with the government’s position that it simply distinguished between salary supplements and salary reductions. The Court then “wade[d] into the murky waters of ‘context’” in the tax code to see if the context supported a different conclusion. After considering prior statutory provisions, revenue rulings, cross-references, and court decisions, the Court concluded that Congress intended “salary reduction agreements” to include both mandatory and voluntary agreements. Since the University failed to properly withhold FICA taxes from its employees, it is liable for both its and its employees’ contributions. The University is excused from paying the employees’ share if it can demonstrate that the obligation was speculative and not precise. Relying on the plain language and the same “context” it examined in reaching a decision on the merits, the Court rejected the University’s argument and held it liable for the assessed taxes.

The IRS also imposed both failure-to-deposit and failure-to-pay penalties. The former addressed the University’s original failure to withhold and deposit the required amounts. The latter addressed the University’s failure to pay the amount assessed. The Court noted that both penalties are required by law unless a taxpayer carries the “heavy burden” of showing that it exercised “ordinary business care and prudence.” The Court held that the University’s “unsupported and unreasonable” interpretation did not met that burden. Finally, the Court rejected the University’s argument that the “divisable tax doctrine” is incompatible with the failure-to-pay penalty. Under the “divisable tax doctrine,” a taxpayer is allowed to challenge an assessed tax without paying the full amount of the assessment, which is generally a jurisdictional requirement. If the tax is divisable, a taxpayer can pay the full amount for one transaction and have the result of its challenge to that transaction control the other transactions. Here, the tax was divisable and the University was able to have its day in court without having to remit the full assessed amount of taxes. Having lost its case, however, the University is still subject to penalties on the unpaid amount.

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