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

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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CLEARY v. PHILIP MORRIS INC. (August 25, 2011)

A class-action complaint brought against Philip Morris in 1998, and later amended, sought disgorgement of profits under an unjust enrichment theory, alleging that Philip Morris concealed facts about the dangers of cigarettes in its marketing and advertising. The complaint alleged three classes: an "addiction" class consisting of Illinois residents who purchased cigarettes between 1953 in 1965, a "youth marketing" class consisting of Illinois residents who first purchased cigarettes as minors, and a "lights" class consisting of Illinois residents who purchased Marlboro Lights. The class plaintiffs withdrew the "lights" class allegations because of another similar pending case. That "lights" case was ultimately unsuccessful in Illinois state court but a 2008 United States Supreme Court case breathed new life into the theory. The class plaintiffs therefore amended their complaint again, reinserting a "lights" class claim. The amended complaint added as defendants other companies who manufactured light cigarettes, including Lorillard Tobacco Company, and also added allegations regarding other brands of light cigarettes manufactured by Philip Morris. Lorillard removed the case to federal court under the Class Action Fairness Act. The district court rejected plaintiffs request to remand on the grounds that the new "lights" claim did not relate back to the original complaint, then dismissed Lorillard on statute of limitations grounds, and then again rejected a request to remand on the ground that Lorillard, the reason for the removal, was no longer a defendant. Later, the district court dismissed as time-barred all claims against the other non-Philip Morris defendants and limited the claims against Phillip Morris to the original Marlboro Lights claims. Ultimately, Judge Kennelly (N.D. Ill.) dismissed the unjust enrichment claims as a matter of law. The class appeals.

In their opinion, Seventh Circuit Judges Cudahy, Manion, and Hamilton affirmed. Before turning to the merits of the unjust enrichment claim, the Court briefly addressed the district court's refusal to remand after the Lorillard dismissal and its limitation of the "lights" claim to Marlboro Lights. With respect to the former, the Court stated that jurisdiction under CAFA is determined at the time of removal. Therefore, Lorillard's dismissal after removal did not affect the court's jurisdiction. With respect to the latter, the Court noted that an amendment relates back to an earlier complaint only when it arises out of the same occurrence. Here, the expansion of the allegations to include other Phillip Morris light cigarette brands would add additional class members and encompass numerous additional transactions. The additional allegations, therefore, do not arise out of the same occurrence and do not relate back. Turning to the unjust enrichment allegations, the Court recognized some tension in Illinois law as to whether unjust enrichment is an independent cause of action or must be tied to a separate claim. It ultimately decided that it did not have to resolve the tension, given its conclusion that the class allegations did not state a cause of action. An unjust enrichment claim must allege defendant's unjust retention of a benefit to the plaintiffs detriment and that the retention was unjust. The only detriment plaintiffs allege, however, is a violation of their right to be informed of the actual dangers and risks inherent in cigarettes. Under plaintiffs' theory, the class would include consumers for whom that alleged violation was not a detriment -- the consumers who would have acted no differently had they known the truth. Without any allegations of harm or that they would have acted differently, the class allegations cannot support a claim of unjust enrichment.

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MICROMETL CORP. v. TRANZACT TECHNOLOGIES (August 24, 2011)

Micrometl and Tranzact were parties to a services agreement that went sour. Micrometl brought suit in state court, alleging that Tranzact had over-billed it by more than $100,000. Tranzact removed the case to federal court. In discovery, Tranzact learned that Micrometl had received funds from third parties that reduced Tranzact's liability to less than $40,000. It also learned that Micrometl received those funds prior to the time it filed suit. Although Tranzact knew that this information brought diversity jurisdiction into question because of the amount in controversy requirement, it did nothing. Discovery closed five months later and the parties participated in a settlement conference five months after that. It was only after the unsuccessful settlement conference that Tranzact moved to remand the case to state court. Magistrate Judge Nolan (N.D. Ill.) concluded that the plaintiff could not meet the amount in controversy requirement and remanded the case to state court. She denied, however, Tranzact's motions for fees and costs. Transact appeals from the order denying fees.

In their opinion, Seventh Circuit Judges Flaum, Wood, and Tinder affirmed. The Court noted that the removal statute allows a district court to award fees and costs when a case is improperly removed. Usually, it is a plaintiff who seeks a fee award against a defend who improperly removed. Here, it is the defendant seeking fees. Although the Court noted the unusual situation, it concluded that there is no barrier to awarding fees to a defendant under the statute. The Court also concluded, however, that the district court did not err in refusing to award fees. The district court correctly concluded that Micrometl knew or should have known that it could not satisfy the amount in controversy requirement and should have alerted the court at the time of the removal petition. Equally troubling to the district court, however, was Tranzact's conduct. It waited 10 months after it discovered the truth to alert the district court to the situation. The Court rejected Tranzact’s nonsensical argument that it could not alert the court because of an order to participate in mediation. It also rejected the argument that the fact that a case can be remanded "any time" means that its delay in informing the court should not be considered. Tranzact's conduct wasted judicial resources and imposed costs on both parties. The district court did not abuse its discretion in refusing to award fees under § 1447(c). Tranzact also sought fees under § 1927. But § 1927 is a sanctions statute that requires a finding of bad faith. The Court deferred to the magistrate judge's finding of no bad-faith. It pointed out, for example, that Micrometl did not exaggerate its damages in order to get into federal court. It originally filed in state court and had no jurisdictional reason to overstate its damages.

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TOWNSQUARE MEDIA v. BRILL (July 21, 2011)

In 2002, creditors of several of Alan Brill's media companies forced them into bankruptcy. The bankruptcy court ordered the companies' radio stations sold. Regent Communications, Inc. was the successful bidder at the sale, although Brill also bid. After several years passed, Brill filed a 111-page complaint in Indiana state court against Regent and a number of other defendants, alleging both tort and contract claims based on state law. The gist of Brill's claim against Regent is that Regent used information obtained from Brill but subject to a confidentiality agreement to outbid Brill for the radio stations. Several of the defendants, creditors in the original bankruptcy case, removed the case to the bankruptcy court in the Southern District of Indiana. Before the bankruptcy court ruled, Brill filed an amended complaint in which Regent was the only defendant and the confidentiality agreement violations were the only claims. The bankruptcy court concluded that the amended complaint was not related to the bankruptcy case. The court therefore concluded that it had no jurisdiction over the case and remanded it to the Indiana state court. Chief Judge Young (S.D. Ind.) affirmed the remand order. Regent appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Rovner dismissed the appeal. The first question for the Court was whether the order was appealable. Under the Supreme Court's reading of § 1447 (the Seventh Circuit has held that the bankruptcy removal section is identical to § 1447), a case remanded for lack of subject matter jurisdiction is not appealable. Although the district court said it lacked jurisdiction, the Court disagreed. When the case was removed, the original creditors were still defendants and the case was challenging the confirmation of the plan. The case was therefore related to the bankruptcy case and within the court's jurisdiction. The Court then assumed, without deciding, that the bankruptcy court also acquired supplemental jurisdiction over the state law claims. The resolution of the federal claim (here by the filing of an amended complaint) did not eliminate the court's jurisdiction over the state law claims. It did create a situation in which the court had the discretion, depending on the number of factors, to keep or remand the claims. Under Carlsbad Technology, the remand of such state law claims is not a remand for lack of jurisdiction but simply a decision to relinquish supplemental jurisdiction. That would normally mean that the order is reviewable under § 1447. But that is not what happened in the bankruptcy court. Regent tried to keep the case in federal court on the ground that even the amended complaint's claims were within the bankruptcy court's jurisdiction -- and that argument was properly rejected by the lower courts. The Court concluded that it could review the order only if it could properly characterize the lower courts' orders as declining to exercise supplemental jurisdiction, despite the words used. The bankruptcy court was very clear in its order that the dismissal was for want of jurisdiction. The Supreme Court concluded in Kircher that an order unmistakably premised on lack of subject matter jurisdiction, even if clearly wrong, is not reviewable. The Court concluded that that was the case here, particularly since neither the courts nor Regent ever argued supplemental jurisdiction.

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

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

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

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BLOMBERG v. SERVICE CORPORATION INTERNATIONAL (April 14, 2011)

Employees of Service Corporation International brought a class action in Illinois state court against their employer, alleging that it failed to properly compensate them for hours worked, in violation of the Illinois Wage Payment and Collection Act and the Illinois Minimum Wage Law. SCI removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). Judge Coleman (N.D. Ill.) remanded the case to state court on the grounds that SCI failed to establish the $5 million minimum amount in controversy required by CAFA. SCI petitions for permission to appeal.

In their opinion, Judges Posner, Wood, and Hamilton granted the petition and reversed and remanded. When one party challenges CAFA’s amount in controversy requirement, the other party must establish that fact by a preponderance of the evidence. The Court appreciated the difficulty a party has in establishing that fact when the plaintiff controls many of the facts and reveals little information about the scope of its claim. Here, SCI did provide some support for this jurisdictional fact. It cited deposition testimony in a similar case against it in another state regarding the number of allegedly unpaid hours. If the Illinois class members had similar allegedly unpaid hours, the threshold would be met. It also cited a Virginia case against it by significantly fewer class members wherein the class itself asserted CAFA jurisdiction. The Court found this evidence plausible and sufficient to support SCI's good faith estimate of the amount in controversy requirement. Unless it is legally impossible for them to recover $5 million, which the plaintiffs have not even argued, removal was appropriate.
 

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BACK DOCTORS LTD. V. METROPOLITAN PROPERTY AND CASUALTY INSURANCE CO. (April 1, 2011)

Back Doctors Ltd., a medical service provider, believed that Metropolitan Property and Casualty Insurance Co. used software that resulted in medical providers being underpaid for their services. Back Doctors filed suit in Illinois state court, on behalf of a class, alleging that Metropolitan breached its contracts with its insurers and violated the Illinois Consumer Fraud and Deceptive Business Practices Act. The suit asks for $2.9 million in damages. Metropolitan removed the case to federal court pursuant to the Class Action Fairness Act. Back Doctors moved to remand on the ground that their $2.9 million demand did not meet CAFA’s $5 million amount in controversy requirement. Judge Reagan (S.D. Ill.) agreed, stating that removal is disfavored and that Metropolitan had not demonstrated a "reasonable probability" that the $5 million threshold had been met. Metropolitan petitioned to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans granted the petition, vacated the remand order, and remanded. The Court first noted that the Supreme Court, in St. Paul Mercury, established the “amount in controversy” test in 1938 -- the threshold is met unless plaintiff cannot possibly recover the jurisdictional minimum. The Court then recited some of the history of the Circuit’s "reasonable probability" test in reference to the amount in controversy. It arose in 1993 in Shaw in reference to a plaintiff's burden to prove jurisdictional facts by a preponderance of the evidence. But the amount in controversy is not a jurisdictional fact, like where a company is incorporated or headquartered. After several years of misapplication, the Court tried to clarify the phrase in 2005 in Brill. When that failed, the Court eliminated the phrase entirely in 2006 in Sadowski. The Court even circulated the Sadowski opinion pursuant to Circuit Rule 40(e) so that it had the effect of an en banc decision. Unfortunately, there is obviously still some confusion. Having established the correct test, the Court asked whether a $5 million recovery was possible. It concluded that it was because of the possibility of punitive damages. Back Doctors, although it has not specifically asked for punitive damages, may still recover them. They have not disavowed them, they have cited no Illinois case disallowing punitive damage coverage when it is not pleaded, and they have a fiduciary duty to other class members to maximize the class recovery. The Court added that Illinois does have a procedure whereby a plaintiff can cap its relief. Back Doctors has not taking advantage of the procedure. Since a $5 million recovery is possible, removal was appropriate.

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O'CONNOR-SPINNER v. ASTRUE (November 29, 2010)

Louquetta O’Connor-Spinner filed an application for Social Security benefits in early 2004. She cited a long history of severe mental and physical impairments and claimed to be unable to perform any work. The evidence indicated treatment for both the physical and mental ailments as early as 2002. Two state psychologists examined O'Connor-Spinner. They both diagnosed her with depression. One indicated that the depression would not prevent her from performing moderately complex tasks but noted a limitation on receiving and responding to instructions appropriately The Social Security Administration denied O'Connor-Spinner's claim. O'Connor-Spinner requested and received a hearing before an ALJ. At the hearing, the ALJ presented the Vocational Expert (“VE”) with increasingly restrictive hypotheticals. Even the most restrictive hypothetical, however, contained no limitations on concentration, persistence, and pace (which the ALJ's assessment of her residual functional capacity established) or on receiving and responding to instructions appropriately (as the one psychologist noted). The VE testified that O'Connor-Spinner could not perform her past jobs but identified several that she could perform. The ALJ therefore concluded that she was not disabled. Then-Judge Hamilton (S.D. Ind.) upheld the ALJ decision. O'Connor-Spinner appeals.

In their opinion, Seventh Circuit Judges Bauer, Ripple, and Kanne reversed and remanded. The Court first addressed the argument that the ALJ's finding of limitations on concentration, persistence, and pace required the ALJ to include those limitations in the hypotheticals. The general rule is that an ALJ must inform the VE all of the claimant's limitations. There is no per se rule that those limitations be included in a hypothetical. But here, where the ALJ focused on increasingly restrictive hypotheticals, where there is no evidence that the VE reviewed the medical history, and where the ALJ did not use other words to describe the same limitation, a remand is required. The Court also agreed that with the claimant that the ALJ should have been more clear with respect to the claimant’s limitation on receiving and responding to instructions. The ALJ neither mentioned nor included that limitation in a hypothetical. The Court noted that this shortcoming may not have, by itself, required a remand. Since the case was going to be remanded anyway, the Court encouraged the ALJ to clarify his position on this limitation in the record.

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ANDERSON v. AON CORP. (July 26, 2010)

Robert Anderson sold his California insurance brokerage firm to Aon Corporation in 1997. He received approximately 95,000 shares of Aon stock when it was trading around $69 per share. Within five years, its share price had fallen to approximately $14. Anderson brought suit in state court in California, his state of residency, and alleged only violations of California securities law. He alleged that the fall in share price was due to the company’s mismanagement, that the mismanagement was fraudulently concealed until 2002, and that he would have sold the shares earlier absent the concealment. Aon removed on diversity grounds. Anderson shortly thereafter dismissed without prejudice, anticipating that the federal court was going to transfer the case to Illinois under § 1404(a). He refiled, again in California state court, and added two California citizen defendants (to prevent diversity). Curiously, this time he included a federal claim (RICO) in his complaint. Aon removed on federal question grounds and also asserted that the additional defendants were fraudulently joined. Anderson dismissed his federal claim and asked that the case be remanded. Instead, the California district court transferred the case to Illinois. Judge Manning (N.D. Ill.) applied Illinois law and dismissed the complaint for failure to state a claim. Anderson appeals.

In their opinion, Chief Judge Easterbrook and Judges Williams and Tinder reversed and remanded. The Court first addressed its appellate jurisdiction, since one of Anderson's arguments was that the California federal court should have remanded to state court, instead of transferring, once he dismissed his RICO claim. The Court recognized that some circuits have held that appellate review in cases such as this is split between the transferor court's circuit and the transferee court's circuit -- but it concluded otherwise. A § 1404(a) transfer is not separately reviewable. The only review comes after a final decision when all rulings of the Illinois court (even if to apply law of the case) are reviewed. On the merits of the transfer decision, the Court concluded that the lower court acted appropriately. There was jurisdiction when the suit was filed because of the federal claim and there was supplemental jurisdiction over the state law claim under § 1367(a). Once the federal claim was dismissed, the district court had discretion to either remand or to assert its supplemental jurisdiction over the state court claims until resolution. The Court cited Andersen's legal maneuvering as one reason the court prudently kept (and transferred) the case. On the substantive merits of the claim, however, the Court found error. The transfer of the case should not affect the applicable law. Here, the court should have applied the California choice-of-law rules to determine which state's substantive law applied. The California choice-of-law rule has three parts: first, it asks whether the different states' laws are different; second (if they are different), it examines each states' interest to decide whether a true conflict exists; and third (if there is a true conflict), it applies the law of the state whose interests would be most impaired by the adoption of the other state's law. The Court noted that the substantive law at issue here was the viability of a "holder action." A holder action is a private action for damages by an investor who claims that he continued to hold the stock, when he would otherwise have sold, because of the deceit of the defendant. The Supreme Court, in Blue Chip Stamps, concluded that holder actions are not viable under federal securities laws. However, they are viable under California securities laws. The Illinois Supreme Court has not spoken, although Illinois generally follows federal law in this area. The Court therefore concluded that there was a true conflict under the choice of law rules in the California. It also concluded that the third prong of the test favored California in that California has affirmatively accepted the viability of a holder action and Illinois has not spoken on the issue. Anderson should thus be allowed to proceed with the action. The Court concluded by noting a number of significant obstacles in Anderson's path but left them to be addressed, in the first instance, by the district court.

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LINCOLN NATIONAL LIFE INSURANCE CO. V. BEZICH (June 25, 2010)

Peter Bezich is a Lincoln National Life Insurance Company policyholder. He has a variable life policy, under which he can allocate funds to either a General Account or a Separate Account. The General Account accumulates premium payments while the Separate Account is an investment account registered with the SEC. Each month, Lincoln National deducts cost-of-insurance charges from a policyholder's account proportionately to the amounts invested in each of the two accounts. Bezich brought a class action in Indiana state court, alleging that Lincoln National breached the terms of the policy in the way it calculated the cost-of-insurance charges. Lincoln National removed the case to federal court under the Class Action Fairness Act (CAFA). Judge Van Bokkelen (N.D. Ind.) remanded the case to state court, relying on the CAFA exception for cases that solely involve claims relating to rights and obligations created by any “security.” Lincoln National petitioned for leave to appeal.

In their opinion, Judges Bauer, Posner, and Wood dismissed the petition for want of jurisdiction. Although the Court was first obliged to look at its appellate jurisdiction, it noted that the language governing its appellate jurisdiction was identical to the language creating the removal exception relied on by the district court. The core question for both is whether the policy is a "security" as defined by the Securities Act of 1933. Although the Court conceded there was authority in different contexts supporting Lincoln National's desire to look at the two component parts of the policy (and find one a security and one not), the Court rejected the applicability of those cases. It cited its agreement with the Eleventh Circuit's decision in Herndon that treated a variable life policy as a "security" under the Securities Litigation Uniformed Standards Act of 1998. Here, the claims of the class concern a promise made by Lincoln National that applied whether a policyholder's funds were in the General or Separate Account. The policy treated as a whole meets the definition of "security" -- the Court therefore lacks jurisdiction to consider the petition.

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ANDERSON v. BAYER CORP. (June 22, 2010)

Bayer Corporation manufactured a prescription medication called Trasylol. A lawyer in St. Clair County, Illinois brought suit against Bayer alleging personal injury resulting from the use of the medication. The action was brought in five separate complaints with 171 plaintiffs spread among the complaints. All but one (the one apparently a mistake) of the virtually identical complaints named fewer than 100 plaintiffs. Bayer removed, citing the "mass action" removal mechanism of the Class Action Fairness Act ("CAFA"). Judge Murphy (S.D. Ill) remanded the four complaints that had fewer than 100 plaintiffs. Bayer petitioned to appeal under CAFA.

In their opinion, Judges Flaum, Manion, and Evans denied the petition. CAFA's "mass action" provision allows a defendant to remove an action if it has 100 or more plaintiffs and otherwise meets CAFA’s removal requirements. The provision specifically excludes an action in which claims are consolidated upon the request of a defendant. The Court found this plain language of the statute dispositive of Bayer's request. Apparently, Congress anticipated this very situation and decided to allow plaintiffs to proceed in state court by limiting each complaint to fewer than 100 plaintiffs. Although the Court concluded that CAFA removal was not available, it did note that the claims could be removable in the future if, for example, the claims were consolidated for trial. The Court declined to consider Bayer's alternative argument that diversity jurisdiction existed under a fraudulent misjoinder theory. The exception to the general rule prohibiting review of a remand order that allowed the Court's review of the "mass action" argument applies only to the remand of class actions. Since these cases are not class actions under CAFA, the Court lacks jurisdiction to review the district court's decision regarding fraudulent joinder.

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IN RE: BURLINGTON NORTHERN SANTA FE RAILWAY CO. (May 19, 2010)

A number of residents of the town of Bagley, Wisconsin filed a class-action suit in state court against Burlington Northern Santa Fe Railway (BNSF). They allege that BNSF's failure to maintain its railroad trestle resulted in a flood and damage to their property. BNSF removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After Judge Crabb (W.D. Wis.) denied the class' motion to remand, the class moved to amend the complaint to withdraw all class allegations. The court granted the motion and remanded the case to state court. It analogized the situation to one in which class certification is denied and noted that district courts were divided on the impact of denial of class certification on CAFA jurisdiction. BNSF requested leave to appeal.

In their opinion, Judges Kanne, Wood, and Sykes granted the petition, vacated the remand order, and remanded. The Court noted the general rule that jurisdiction is determined at the time of removal. It then cited its recent decision in Cunningham Charter Corp. (see intheiropinion), which was decided after the district court's remand. In Cunningham Charter, the Court concluded that the denial of class certification did not require remand of a case removed under CAFA. The same considerations that lead to that conclusion should apply when class action status is amended away voluntarily.

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PETTITT v. THE BOEING COMPANY (May 17, 2010)

In the spring of 2007, a Boeing 737 crashed in Cameroon -- all those aboard died. A few years later, six lawsuits were filed relating to the accident in Cook County Circuit Court. All six suits were removed to federal court pursuant to the Multiparty, Multiforum Trial Jurisdiction Act (MMTJA). Three of the six suits have since been dismissed. The other three were assigned to three different district court judges. In one of those cases, Boeing moved for a reassignment and consolidation of the case to the judge with the lowest numbered case, pursuant to local rule. Instead of ruling on the motion, however, the court on its own remanded the case to state court. The basis for his remand was the fact that not all the defendants had consented to the removal. Boeing appeals.

In their opinion, Circuit Judges Cudahy and Kanne and District Judge Darrah vacated and remanded. The Court first addressed its jurisdiction, since a remand order under § 1447 (c), as this is, is generally not appealable. The Court clarified that, although it cannot review the propriety of such an order, it can determine whether a court possessed the actual power to do what it did. Here, in fact, it concluded that the court had no such power. Any defect in the removal was a procedural defect -- and procedural defects are waived if not raised by motion within 30 days of removal. The district court has no power, on its own, to remand after the passage of the 30 days. As an aside, the Court noted the absence of any procedural defect. Acknowledging that removal generally requires the consent of all defendants, the Court stated that removal under the MMTJA does not require all defendants' consent.

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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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SCHUR v. L.A. WEIGHT LOSS CENTERS, INC. (August 14, 2009)

Pamela Hoppe, an Illinois citizen, joined a weight loss program at her local L.A. Weight Loss Center ("Center"). After just several months of diet and nutritional supplements, Hoppe died of acute liver hepatitis. Her estate filed suit in state court against the Center alleging a variety of state law claims. The Center removed the case to federal court on diversity grounds, where the parties conducted discovery for just over one year. The estate then amended its complaint, adding claims against two Center employees, both Illinois residents. The estate then moved to remand the case to state court because of the new lack of diversity. On the Center's motion, the court struck the amended complaint on the grounds that the new defendants were fraudulently joined. Later, the court granted summary judgment to the Center. The estate appeals.

In their opinion, Judges Bauer, Kanne and Sykes vacated and remanded. The Court addressed the jurisdictional issue first. It noted that 28 U.S.C § 1447(e) applies when a plaintiff seeks to join a non-diverse party that would eliminate subject matter jurisdiction. A district court has two options -- it can deny the joinder and keep the case or it can allow the joinder and remand the case. It should not do what the court did here – allow the joinder and keep the case. The Court then adopted a framework of factors a lower court should consider in exercising its discretion on joinder: the plaintiff's motive, the timeliness of the request, the harm to the plaintiff if denied, and other equitable considerations. Before addressing these factors, the Court “detoured” to address whether the district court had the authority to reverse the joinder decision, further complicated by the fact that a magistrate judge had granted the motion to amend. In the particular posture of this case, the Court concluded that the district court was permitted to reconsider the magistrate's order. Because the motion was granted as a routine matter without any indication of its jurisdictional significance, the Court joined several other courts in concluding that a district court may reconsider a prior joinder decision when it was unaware that joinder would defeat diversity. Finally, the Court proceeded to examine the lower court's exercise of its discretion. The lower court had relied on the doctrine of fraudulent joinder in striking the amended complaint. It found that it was unlikely that the estate could prevail against the individual defendants. The Court concluded that the district court misapplied Illinois law in reaching that conclusion. Although vicarious liability can result in employer liability for employees' misconduct when the acts were committed within the scope of employment, it does not affect the employees' direct liability. The Court found that it was error to conclude that it was unlikely for the state to succeed against the individual employees. With respect to the plaintiff’s delay in adding the individual employees, the Court acknowledged that the amendment followed a year of discovery but emphasized that the amendment came within a few months of the estate learning of each employee's role in the events prior to Hoppe's death. Thus, the Court concluded that the lower court abused its discretion in denying the remand. Since it had no jurisdiction, it should not have reached the merits and neither did the Court.

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IN RE: INGERSOLL, INC. (April 15, 2009)

Winthrop Ingersoll founded the Ingersoll Cutting Tool Company (ICTC) in the late 1800s. It remained a family- owned leader in its industry through the year 2000. In 2001, Iscar, Ltd. acquired ICTC. The then-owners and descendents of Winthrop Ingersoll, the Gaylords, alleged that they never intended to sell but were duped into it by outside directors. They contacted attorney Marshall Miller to assist them in blocking the sale. He agreed to do so and enlisted the help of David Margules. The Gaylords reached an agreement to pay Miller and Margules $100,000 for the representation. The litigation proceeded apace. Miller soon asked for an retainer increase to $250,000. The litigation was unsuccessful, the sale was consummated and the Gaylords paid the $250,000. Then things got interesting: a) the attorneys sent invoices totaling $390,000, b) Miller and the Gaylord's submitted their fee dispute to arbitration, c) the arbitrator apparently ruled that the Gaylords did not owe any more to Miller and didn't decide whether they owed anything to Margules, d) the D. C. Superior Court ordered the Gaylords to pay an additional $83,000 to Miller (which they did), and e) Margules brought an action in Delaware to recover the $60,000 he claimed he was owed, which was denied. In the meantime ICTC's parent, Ingersoll International Inc., petitioned for bankruptcy. Although the Gaylords were not debtors in that case, the bankruptcy court confirmed a liquidation plan that released the Gaylords from claims "arising from" or "relating to" their original case to enjoin the sale of the company. The Gaylords sought relief in the bankruptcy court from another claim filed in the D. C. Superior Court by Miller. Although recognizing that the Gaylords were not debtors and that Miller was not a creditor, the bankruptcy court held that the release was valid because it was key to the ultimate negotiation and success of the plan. The district court, after a remand for clarification, affirmed the bankruptcy court. Miller appeals.

In their opinion, Judges Bauer, Evans and Williams affirmed. First, the Court agreed with the lower court that the release was broad enough to cover Miller's claim. Since the claim related to a breach of the arbitration award, which arose out of a fee dispute in the identified litigation, the Court concluded that it was clearly covered. As for the validity of the release, the Court noted that releases of non-debtors should rarely be approved. Here, however, the release was narrowly tailored, only covered claims relating to two cases, and was, according to the bankruptcy court, essential to the success of the plan. Although the Court approved the use and validity of the release in this case, it warned that releases like it will usually not pass muster.

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KURZ v. FIDELITY MANAGEMENT & RESEARCH CO. (February 23, 2009)

Kurz and Heinzl both invested in portfolios managed by Fidelity Management & Research Co. (“Fidelity”). Apparently, some Fidelity employees placed trades with Jeffries & Co. in return for kickbacks from Jeffries. The SEC initiated a proceeding under the Investment Company Act and the Investment Advisors Act. Fidelity and the SEC entered into a consent decree. Kurz and Heinzl thereafter filed a class-action suit in state court, alleging that the employees’ conduct resulted in a breach of contract by Fidelity. Fidelity removed to federal court on the basis that their failure to disclose the employees’ misconduct was a securities law issue. The district court denied Kurz’ motion to remand and entered judgment for Fidelity. Kurz appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall affirmed. The Court referred to the Securities Litigation Uniform Standards Act of 1998 (the “Act”). The Act generally bars class actions based on state law which allege an omission of a material fact “in connection with the purchase or sale of a covered security. The Court noted that there are exceptions to the bar (like a derivative action) but Kurz did not invoke any exception. Instead, his position was that the claim was a contract claim -- not one for a misrepresentation or omission. The Court agreed that a true action for breach of contract would not be barred by the Act but concluded that Kurz could not maintain an action for breach of contract. The principal reason for his inability to do so was the complete absence of any promise made by Fidelity to Kurz.

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