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

CARR v. TILLERY (January 12, 2010)

Rex Carr was a lawyer in southern Illinois. He and his partners had several agreements concerning the allocation of fees earned by the firm. The agreements continued in effect after the dissolution of the firm in 2003. Significant disputes arose, and a host of lawsuits were filed, with respect to those fees. A Memorandum of Understanding (MOU) was agreed to in 2004. It was meant to control the distribution of all fees, past and future, among the partners. Notwithstanding an agreement to dismiss all pending cases, Carr actually amended a counterclaim in one of the pending actions to assert that he had been fraudulently induced to enter into the MOU. The claim was eventually dismissed and the dismissal was affirmed. While the appeal was pending, Carr brought four separate suits in state court, then brought this federal case, and then voluntarily dismissed the state cases. He brought the federal case under RICO, repeating many of the allegations of the earlier suits, including the fraudulent inducement claim. The district court dismissed the suit for failure to state a claim. Carr appeals. The defendants cross-appeal from the court's denial of their motion for sanctions.

In their opinion, Judges Posner, Ripple, and Wood affirmed in part and vacated and remanded in part. On the merits, the Court disagreed with the court below that all the claims were barred by the doctrine of res judicata. The complaint contains at least one claim that postdates the earlier dismissal. The Court held that the claims were barred, however, by Illinois' "one refiling" rule. Under that rule, a plaintiff who voluntarily dismisses a complaint may start a new action within one year or the remaining period of limitations. Illinois courts have held the rule to mean that a plaintiff may commence only one new action after a voluntary dismissal. Here, Carr filed four lawsuits in Illinois before he filed the federal lawsuit. He dismissed all of the state court suits soon after he filed a federal suit. Although each of the state court suits was based on a different theory of liability or sought different relief, they all arose from the same events. That is true even for the claim postdating the earlier dismissal, a claim that the defendants violated the MOU. The Court next considered whether the RICO claim, on which federal jurisdiction was based, was so weak so as to not support jurisdiction. Such a conclusion would lead the Court to dismiss for lack of jurisdiction rather than on the merits. Although the Court termed the claimant a "complete nonstarter," since it was so on the basis of an affirmative defense, the Court concluded that a dismissal on the merits with prejudice was more appropriate. On the cross-appeal, the Court found the denial of sanctions erroneous. Although the defendants based their motion on § 1927, which does not apply to misconduct prior to the filing of the federal complaint, the Court saw no reason why the district court could not invoke its inherent, common law power to punish attorney misconduct. The filing of multiple lawsuits, including the present frivolous one, was ground enough for the Court to direct the district court to assess a proper sanction and consider enjoining Carr from conducting further related litigation.

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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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RAO v. BP PRODUCTS NORTH AMERICA (December 9, 2009)

Salik Rao operated as a BP gasoline service station dealer in the Chicago area. For 10 years beginning in the early 1990s, Rao gave over $100,000 worth of cash and gifts to a BP sales manager. In return, the sales manager performed many favors for Rao, to his great benefit. In 2003, Rao reported this improper activity to BP. However, he characterized it as extortion on the part of the sales manager. BP begin an investigation which ultimately led to the termination of the sales manager in November of 2003. BP continued its investigation, seeking to confirm the extortion. Although Rao promised to cooperate, he never met with BP after November of 2003 and affirmatively withdrew his pledge of cooperation in June of 2004. BP notified Rao in October 2004 that it was terminating its franchise relationship with him because of his improper activity. Rao brought suit under the Petroleum Marketing Practices Act ("PMPA"), as well as RICO, fraud, breach of contract and extortion. The court dismissed the counts based on RICO, fraud and breach of contract and granted summary judgment on the PMPA claim. Rao appeals.

In their opinion, Judges Bauer, Flaum and Williams affirmed. The principal issue on appeal was whether BP's notice of termination was sufficient under the PMPA. The PMPA, which protects service station franchisees, allows early termination of franchise agreements in certain circumstances, which Rao does not contest here. The PMPA requires the franchisor to give a notice of such early termination within 120 days of when it "first acquired actual or constructive knowledge" of the reason for the termination. Here, it is uncontested that BP knew of the improper conduct well over 120 days before providing termination notice. The Court focused, however, on what BP knew when and what BP did. From the fall of 2003 through the middle of 2004, Rao continued to insist that he was a victim of the sales manager's extortion. The sales manager, at the same time, insisted that the gifts were given voluntarily in exchange for his favors. The Court concluded that the statute did not require BP to give notice while it was still investigating the allegations. It was not until Rao ceased his cooperation that the clock started. BP's notification was sent within 120 days of that date and was therefore proper. The Court affirmed the rest of the lower court's judgment as well.

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THE CANCER FOUNDATION v. CERBERUS CAPITAL MANAGEMENT (March 19, 2009)

In the late 1990s, Martin Lapides and his corporate empire were suffering. He obtained a $23 million line of credit from the Gordon Brothers Group and others. Soon after, Gordon Brothers, working with Lapides' chief financial officer, began to wrest control of one of the corporations away from Lapides. Once Gordon Brothers and the others obtained control of the corporation, they placed it in bankruptcy. The bankruptcy triggered a whole host of financial troubles for Lapides. One of the victims of these troubles was the Cancer Foundation, when one of Lapides’ companies was unable to fulfill an $80 million pledge. Several individual investors in Lapides’ corporations filed suit and obtained a $7 million judgment against Lapides personally. The Cancer Foundation, Lapides and others who suffered harm from the conduct of Gordon Brothers filed suit in 2007 under the Racketeer Influenced and Corrupt Organization Act (RICO). The district court dismissed the complaint on the grounds that it was barred by the statute of limitations. Plaintiffs appeal.

In their opinion, Judges Ripple, Manion and Evans affirmed. The Court noted the "generous" four year statute of limitations for a RICO cause of action runs from the time when a plaintiff discovers the harm. A plaintiff does not have to know that the harm is actionable to begin the limitations period. The Court agreed with the district court in holding that the complaint was barred. The conduct complained of was complete an entire decade before the suit began. The Court rejected plaintiff’s argument that the statute did not begin to run until an article in Forbes alerted them to the alleged conspiracy. The plaintiffs were clearly aware of their injury, even if they were not aware of all of its particular elements, well outside of the limitations period.

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