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

WHITELY v. MORAVEC (February 16, 2011)

Waste Reduction, Inc. laid off several workers at its Indiana facilities in 2006 and filed for bankruptcy. It paid the workers' wage claims through the bankruptcy proceedings but had insufficient assets to satisfy the statutory penalty claims. Former employees filed suit against the company's ten largest shareholders pursuant to New York (where Waste Reduction was incorporated) law imposing employer liability on shareholders in some circumstances. Then-Judge Hamilton (S.D. Ind.) concluded that the defendants were entitled to judgment but kept the case open until the bankruptcy court resolved the wage claims. Once no wage claims existed, the court entered judgment. The plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Posner and Rovner affirmed. The Court first rejected the plaintiffs' argument that the district court abused its discretion in not remanding the case to state court once it decided the federal ERISA issues. On removal, a federal court has discretion to resolve both the federal and state issues, which is what the court did here. The Court turned to the merits. Under New York law, the ten largest shareholders of privately held companies are jointly and severally liable for "debts, wages or salaries . . . for services performed." The Court seemed to hold that the plaintiffs could not cobble together both the Indiana late wage penalty statute and the New York investor liability statute to create a hybrid statute (likening it to a jackalope or griffin). It decided the case on narrower grounds, however. The New York statute only imposes liability for debts "for services performed." The Indiana statutory penalty is not a debt "for services."

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DIRECTV v. BARCZEWSKI (May 13, 2010)

David Barczewski and Jonathan Wisler purchased electronic equipment that was actually marketed for its ability to intercept DirecTV signals. They both also participated in discussion groups whose purpose was to exchange advice about intercepting and decrypting those signals. When DirecTV sued them, a jury found that Wisler had intercepted signals without authorization for 435 days and that Barczewski had distributed four unauthorized decryption devices. The court imposed a statutory penalty of $44,000 against Barczewski and $43,500 against Wisler. Barczewski and Wisler appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed in part and vacated and remanded in part. The Court first summarily rejected defendants' contentions that DirecTV did not have a private right of action under 18 U.S.C. § 2520 or 47 U.S.C. § 605. It noted that every court of appeals that had considered the questions agreed. It also quickly disposed of their argument that an exception in the statute for an "aeronautical communication system" applied because a DirecTV witness at trial stated that DirecTV was such a system. Whatever the witness meant, the Court interpreted the statute and concluded that DirecTV is not the kind of system referred to in the exception. Finally, the Court addressed the issue of the penalty. Although it affirmed the calculation of Barczewski’s penalty, it vacated the award of the penalty against Wisler. The statute provides that a court "may” assess the greater of a) the sum of the plaintiff's damages and the violator's profits, or b) the greater of $100 per day of violation or $10,000. In 1990, the Court held, in Rodgers v. Wood, that the imposition of the highest penalty under that calculation was mandatory. Part of the Rodgers rationale was that Congress changed the statute and replaced “shall” with “may” without any explanation for a change from mandatory to discretionary. Rodgers was also the first Court of Appeals decision interpreting that section. Since Rodgers, each of the four other circuits that have addressed the question has disagreed – and concluded that the language is permissive. Upon a careful review of the statutory language, the rationale of Rodgers, the analyses from the other circuits, and the policy considerations, the Court overruled Rodgers' holding that the maximum penalty was mandatory. It vacated the award and remanded to the district court.

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