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

NATIONAL PRODUCTION WORKERS UNION INSURANCE TRUST v. CIGNA CORP. (December 30, 2011)

The National Production Workers Union Insurance Trust decided that it wanted to provide a life insurance benefit to its members. Specifically, it wanted a policy that provided a $100,000 total death benefit and it wanted the Trust to be a 50% beneficiary. It turned to its insurance broker, Robert Mondo. Mondo sent out an RFP to various insurance companies. The Life Insurance Company of North America responded with a summary proposal. The summary did not mention the beneficiary provision. The Trust accepted the proposal and Life sent Mondo an application and draft policy. The policy did not contain the requested beneficiary provision. The application provided that payment of the premium constituted acceptance of the policy's terms and conditions. The Trust signed the application and sent in its first premium. About six months later, the Trust submitted its first claim. Life denied the Trust's claim and paid the entirety of the benefits to the deceased's son. The Trust continued to demand its share. Finally, Life terminated the policy. In its letter terminating the policy, Life's attorney suggested that there had been no "meeting of the minds." The Trust filed suit for declaratory judgment and rescission as well as breach of contract, unjust enrichment, and negligence. Life counterclaimed for unpaid premiums. Judge Hibbler (N.D. Ill.) dismissed the negligence count and Judge Dow (N.D. Ill.) granted summary judgment to Life on the complaint and entered judgment for Life on its counterclaim for $95,000. The Trust appeals.

In their opinion, Seventh Circuit Judges Bauer, Manion, and Kanne affirmed. The Trust raised several issues on appeal, all of which were rejected by the Court. First, the Court rejected the Trust's argument that the termination letter’s reference to "no meeting of the minds" created an issue of fact regarding the contract's existence. Although the Court called the letter's wording "unfortunate," it concluded that the letter provided no objective evidence of the parties' intent when the contract was signed months earlier. The Trust signed the application and agreed to pay and paid the premiums. Life provided coverage until termination. The letter is irrelevant. Second, the Court rejected Life's argument that Mondo's agency terminated before he delivered the policies to Trust. The record is simply otherwise. Mondo continued to act as the Trust's broker for years and continued to communicate with Life with respect to this particular policy, even submitting the first claim. Furthermore, even if Mondo's agency terminated before he delivered the policy, the Trust still had access to it and is charged with knowledge of its contents. Third, the Court rejected the Trust's appeal with respect to the unjust enrichment claim. Since the Court has already held that a contract existed, and the unjust enrichment claim cannot stand in the face of a contract, that claim must fail. Finally, the Court affirmed judgment in Life's favor on the unpaid premiums. The record is clear that Life remained at risk until the end of September. The Trust offered no evidence to support its argument that it should not have had to pay premiums for the final two months.

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LINDQUIST FORD v. MIDDLETON MOTORS (September 13, 2011)

Middleton Motors, a Ford dealership near Madison, Wisconsin, was experiencing financial difficulties in 2002. It began discussing arrangements with Lindquist Ford, an Iowa dealership. Middleton wanted both daily management help and an infusion of cash. Discussions continued into 2003, when the dealerships signed a confidentiality agreement and also agreed not to hold the other liable in the absence of a written agreement. The parties never consummated a written agreement and Lindquist never invested any funds. Nevertheless, Craig Miller, Lindquist's general manager, took over Middleton's management in April of 2003. He remained in that capacity until Middleton terminated the relationship in March of 2004. When Middleton refused to compensate Lindquist, Lindquist brought suit for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment. The district court granted summary judgment to Middleton on the contract and promissory estoppel claims but, after a bench trial, awarded $160,000 to Lindquist on the unjust enrichment and quantum meruit claims. The Seventh Circuit reversed and remanded (opinion here and intheiropinion here) for a new trial. On remand, Judge Crabb (W.D. Wis.) again found for Lindquist and awarded approximately the same amount. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder remanded with instructions to enter judgment for Middleton. The Court noted that both unjust enrichment and quantum meruit under Wisconsin law contain an equitable element. When it remanded the first appeal, it identified as the only remaining issue whether Lindquist's compensation expectation was equitably reasonable, considering the parties' course of conduct. If Lindquist expected to be paid only if Miller was successful and he was not, but was given a chance to be, then Lindquist should not be compensated. The negotiation record between the parties clearly establishes that Lindquist did not expect to be paid unless the Middleton dealership became profitable. Although the district court found that Lindquist did make the dealership profitable, the Court concluded that it erred in doing so. That conclusion is simply unsupported by the evidence. Therefore, Lindquist can only recover if Miller was not given a chance to make the dealership profitable. The district court concluded that he was not. Again, however, the Court concluded that the district court's findings were clearly erroneous and that Middleton did not prevent Miller from making the dealership profitable. Judgment should have been entered for Middleton.

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CARROLL v. STRYKER CORP. (September 6, 2011)

Matthew Carroll was a commissioned sales representative for Stryker Corporation, a medical instrument manufacturer. Each year, Stryker sent its commissioned salespeople a compensation plan that sets sales targets and described the compensation structure. Carroll failed to meet his sales quotas in 2006 and 2007. Beginning in 2008, Stryker warned Carroll that he had to meet his sales quota each quarter or face termination. Although he was short of his quota on March 31, 2008, Carroll had a sale in progress that, if closed, would put him over his target. Stryker rejected the purchase order on March 31 because it sought to modify Stryker's normal terms and conditions. The company gave Carroll an extra day to submit a satisfactory purchase order. When he did not, Stryker fired him. Within a month, Stryker had resumed negotiations with Carroll’s potential customer, modified the financing term that it had earlier refused to modify, consummated the deal, and paid a commission to Carroll’s successor. Carroll brought suit in state court under a Wisconsin wage payment statute. He also asserted claims for quantum meruit and unjust enrichment. Stryker removed the case to federal court, asserting that the statutory claim plus attorneys fees met the $75,000 diversity jurisdiction amount in controversy threshold. But Stryker then asserted in its answer that the statutory claim was unavailable to Carroll because it did not apply to commissioned salespeople. When Stryker made the same argument in its motion for summary judgment, Carroll sought to withdraw the statutory claim and add a claim for breach of contract. Magistrate Judge Crocker (W.D. Wis.) granted summary judgment to Stryker, holding that the equitable remedies could not succeed in light of the written compensation contract, and denied the motion for leave to amend, citing delay and lack of good cause. Carroll appeals.

In their opinion, Seventh Circuit Judges Manion, Evans (who, as a result of his death, took no part in the decision), and Sykes affirmed. The Court first addressed the propriety of the removal, given that the statutory damages on which it was based appeared to be unavailable to a commissioned salesperson. The Court noted that it may have concluded that it lacked jurisdiction if the statutory claim was the only claim presented. It noted, however, that Carroll included claims for compensatory damages under the quantum meruit and unjust enrichment counts that satisfied the jurisdictional amount requirements. Turning to the merits, the Court stated that Wisconsin law permits quantum meruit and unjust enrichment claims only in the absence of an express contract. Although the Court conceded that Carroll had no employment contract and could be discharged at will, it also concluded that he did have an express compensation contract. Each year, the company sent out a compensation plan. Although the plan was not signed by the parties, Carroll continued to work and Stryker continued to pay him. That is all that is required for an express contract. The equitable claims were properly dismissed. Finally, the Court had little difficulty in finding no abuse of discretion in the district court's denial of Carroll's request to amend. It was filed seven months after a court-imposed deadline and less than a month before the end of discovery. Particularly given that Carroll was aware of the statutory problem from the very onset of the case, the denial was quite reasonable.

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KOLBE & KOLBE HEALTH & WELFARE BENEFIT PLAN v. THE MEDICAL COLLEGE OF WISCONSIN, INC. (September 2, 2011)

Scott Gurzynski worked for the Kolbe & Kolbe Millwork Co. and participated in its welfare benefit plan. His daughter K.G. was born in 2007. Although he submitted an enrollment change to the Plan in mid-2007, it was incomplete. For example, he neglected to indicate whether K.G. lived with him and whether he claimed her as a tax exemption. It was not until late November that he admitted that she did not live with him and that he was not claiming her as an exemption. The Plan requested additional information without success. It eventually denied enrollment status to K.G. in June 2008. Meanwhile, K.G. had received over $1.5 million in medical care from the Medical College of Wisconsin and the Children's Hospital of Wisconsin, all paid for by the Plan. After its decision denying K.G. enrollment status, the Plan asked the Medical College and the Children's Hospital to refund the money the Plan had paid. They refused. In a second amended complaint, the Plan seeks recovery under three theories: a) ERISA § 502(a)(3) equitable relief, b) unjust enrichment under federal common law, and c) breach of contract. Judge Crabb (W.D. Wis.) dismissed each of the claims and awarded attorneys fees to the defendants. The Plan appeals.

In their opinion, Seventh Circuit Judges Flaum and Williams and District Chief Judge Herndon affirmed in part and reversed and remanded in part. The Court addressed each theory in turn. ERISA § 502(a)(3) allows a Plan fiduciary to bring an equitable claim to enforce a term of the Plan. Here, the Plan seeks to enforce the Plan's overpayment provision. Under that provision, the Plan is entitled to seek recovery of payments it has made in error. However, the Plan limits that right to recovery from a "Covered Person." Although that term is not defined in the Plan, it is clear that neither the defendants, who provided the medical services, nor K.G., who was denied enrollment in the Plan, is a "Covered Person." The ERISA count was properly dismissed. In fact, in addressing the unjust enrichment count, the Court noted that ERISA had nothing to do with the case. K.G. was never covered by the Plan -- there is no need to interpret ERISA or the Plan. Therefore, there is also no ERISA unjust enrichment claim. The Court turned to the state law breach of contract claims. First, it concluded that the claims were not preempted by ERISA since the claims do not relate to the terms of the Plan. Instead, they relate to the contracts between the Plan and the defendants. The Court therefore remanded the state law claims to the district court, with the comment that the normal practice would be to decline to exercise supplemental jurisdiction over the claims. With respect to attorney's fees, the Court stated that the basic question, after the prevailing party's showing of some degree of success on the merits, is whether the losing party's position was substantially justified or merely harassment. The district court had concluded that the ERISA and state law claims were not substantially justified. The Court concluded that that was an abuse of discretion. It found all of plaintiffs claims to be substantially justified and taken in good faith – and reversed the fee award.

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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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LADY DI’S, INC. v. ENHANCED SERVICES BILLING, INC. (August 16, 2011)

Enhanced Services Billing and ILD Telecommunications are what are known as "billing aggregators." They are, in essence, the middleman between telephone companies and service providers. Service providers are vendors that provide services, sometimes related to telecommunications and sometimes not, to individuals and businesses. They use billing aggregators to process and transmit the costs of the services to their customers on the customer’s telephone bill. Lady Di's is a small Indiana business run by Dianne Markin-Venn. AT&T is its telephone company. In 2008, both ESBI and ILD placed charges on Lady Di’s AT&T bill. Lady Di’s filed suit, alleging unjust enrichment and a violation of Indiana's Deceptive Commercial Solicitation Act. It alleged that the charges were all unauthorized. Judge Barker (S.D. Ind.) granted summary judgment to the defendants. Lady Di’s appeals.

In their opinion, Seventh Circuit Judges Rovner and Hamilton and District Judge Lefkow affirmed. Lady Di’s case arises out of Indiana's attempts to control cramming, which is the practice of charging telephone customers for unauthorized services. The Indiana General Assembly passed a statute the provided that a customer could not be billed for unauthorized services. The Indiana Utility Regulatory Commission promulgated a rule that required certain telecommunications providers to maintain several kinds of documentation before charging a customer for a service. The regulation only applies to primary inter-exchange carriers, local exchange carriers, and their billing agents and does not provide a private cause of action. Although the plaintiff originally alleged that the charges were actually unauthorized, defendants brought forth evidence that the services were authorized. Notwithstanding the facts that Lady Di’s authorized the services and that the regulation provided no private cause of action, Lady Di’s asserts its claims for unjust enrichment and Deceptive Commercial Solicitation Act. The Court rejected the arguments. First, the Court concluded that ESBI and ILD were not subject to the regulation because they were not billing agents for a primary inter-exchange carrier or a local exchange carrier. The undisputed facts show that they were neither authorized nor retained to act on these carriers’ behalf. In fact, the local carrier charged these defendants a fee for using its monthly billing system to collect on behalf of itself and its service providers. Second, even if ESBI and ILD were subject to the regulation, they would still be entitled to summary judgment on the unjust enrichment claim. Unjust enrichment requires that the defendant’s retention of a benefit be unjust. Here, Lady Di’s ordered the services for which it was charged. The Court concluded that an Indiana court would not extend the theory of unjust enrichment to such a case. Third, even if ESBI and ILD were subject to the regulations, they would be entitled to summary judgment on the Deceptive Commercial Solicitation Act claim. The statute, on its face, applies to the act of billing for services not yet ordered. Lady Di’s ordered the services in question -- the statute simply does not apply.

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WHITE PEARL INVERSIONES S.A. v. CEMUSA, INC. (July 26, 2011)

Cemusa is a U.S. subsidiary of a Spanish company that places street furniture (bus shelters, trash bins, etc.) in the European market. Cemusa hired White Pearl Inversiones, a Uruguayan company, to help it break into the United States market. Cemusa and White Pearl collaborated informally in responding to opportunities in Miami and San Antonio. Cemusa was successful in both cities. They entered into a Letter Agreement in March of 2003 in anticipation of a similar opportunity in New York City. Cemusa agreed to pay $240,000 for White Pearl's guidance on strategy and professional introductions. The Letter Agreement also provided that the $240,000 would be deducted from any compensation owed under the anticipated Master Agreement. Cemusa and White Pearl did enter into a Master Agreement days later. The Master Agreement provided that the parties would enter into city-specific RFP Agreements for each project. It also provided that White Pearl would receive 3.75% of Cemusa's net revenue in any given project if an RFP Agreement did not provide otherwise. The right to the fee vested on the issuance of an RFP. The Master Agreement was terminable by either party on 30 days notice. Cemusa terminated the Master Agreement in February 2004, before any RFP had issued. New York City issued its RFP the following month. Cemusa was awarded contracts in each of the city's five boroughs. Cemusa refuses to pay White Pearl any more than the Letter Agreement's $240,000. White Pearl filed suit for breach of contract as well as numerous other state law claims. Judge Andersen (N.D. Ill.) dismissed the complaint. White Pearl appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Williams affirmed. The Court first addressed jurisdiction. The complaint states that White Pearl is a Uruguayan corporation -- but Uruguay does not have corporations like the U.S. It does have limited liability businesses, however. The Court ultimately found that it did not have to decide White Pearl's status. It would either be treated like a corporation or like a joint-stock company. Since its only equity investors are citizens of Brazil, complete diversity is established either way. The Court next addressed the source of applicable law. The Letter Agreement expressly provides that is it is to be governed by the laws of Spain. But neither party mentioned the law of Spain. They both cite Illinois and New York cases. As a result, the Court considered dismissing the appeal on forfeiture grounds. It decided not to do so, but warned that it could in a less straightforward case. It turned to the merits. White Pearl does not claim that it was not paid the $240,000 provided for in the Letter Agreement. Likewise, White Pearl does not contest Cemusa's termination of the Master Agreement. A court will not resort to quantum meruit or unjust enrichment to modify a contract's price term. White Pearl agreed to a set fee. Cemusa is not obligated to compensate it for effort that it voluntarily offered above anything required by the contract. The Court did briefly mention the Illinois remedy in quantum meruit when a party terminates a contract after most of the work has been completed. It gave as examples the attorney who is fired right before the jury's verdict or the real estate agent who is fired the day before closing. White Pearl's efforts are not analogous, however. It is more akin to the attorney or real estate agent who consults with a client and does some preliminary work but is not hired. White Pearl is entitled to the $240,000 – no more.

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 SIEGEL v. SHELL OIL CO. (July 30, 2010)

Michael Siegel is a retail gasoline consumer. He brought a class action against several major oil companies. The complaint alleged that the oil companies violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA") and were unjustly enriched as a result of their concerted effort to reduce the supply of gasoline, thereby increasing its price. Judge St. Eve (N.D. Ill.) denied class certification and entered summary judgment for the defendants. Siegel appeals.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Griesbach affirmed. The Court noted that an Illinois claim for unfair conduct under the ICFA requires both a substantial injury that could not reasonably have been avoided and that the injury be the proximate result of defendants' conduct. Addressing first the class certification issue, the Court concluded that the district court did not abuse its discretion in finding that common issues of fact did not predominate over individual issues. For example, each class member's gasoline purchasing habits would have to be determined in order to establish causation. On the merits, the Court concluded that Siegel's own testimony precluded a finding of proximate causation. He testified that he could and did purchase gasoline from other oil companies, that he continued to purchase gasoline from the defendant oil companies, and that many factors were relevant to his buying decisions. Finally, an unjust enrichment claim is not a stand-alone claim. Here, Siegel’s claim rests on his allegation of unfair conduct. Having rejected the ICFA claim, the Court rejected the unjust enrichment claim as well.

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LINDQUIST FORD v. MIDDLETON MOTORS (February 25, 2009)

The Hudson brothers owned and operated Middleton Motors, Inc. (“Middleton”), a Ford dealership. The company was experiencing significant financial difficulties and sought assistance from Lindquist Ford, a dealership in a neighboring state. They discussed the possibility that Craig Miller, Lindquist’s manager, could help manage the operation. They also discussed the possibility of a cash infusion from Lindquist. In April 2003, the parties agreed that Miller would begin working at Middleton on a part-time basis and, in fact, he began working at Middleton on April 21. The parties had not yet reached an agreement although there was an understanding that Miller’s compensation would be based on net profits. Further discussions continued regarding a cash infusion by Lindquist and an understanding of Miller’s compensation but an agreement was never reached. Middleton fired Miller almost a year after he started – without any compensation having been paid or any cash infusion by Lindquist. Lindquist brought an action for quantum meruit and unjust enrichment. After a bench trial, the court found for Lindquist on both counts and awarded $152,332 in damages. Middleton appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder reversed and remanded. The Court first noted some confusion in Wisconsin case law on unjust enrichment and quantum meruit and reviewed the fundamentals of the claims. Both quantum meruit and unjust enrichment are quasi-contractual remedies applicable only when there is no enforceable contract. Both are governed by equitable principles in Wisconsin. The elements of unjust enrichment are: a) a benefit to the defendant by the plaintiff, b) appreciation by the defendant of the benefit, and c) retention of the benefit where it would be inequitable to retain it without payment. The measure of damages is the value of the benefit. Quantum meruit, on the other hand, does not require a benefit to be conferred on the defendant and damages are determined by the reasonable value of plaintiff’s services. Its elements are: a) proof that the defendant asked for the services of plaintiff, and b) proof that plaintiff reasonably expected compensation. The Court also discussed the Wisconsin case law regarding implied-in-fact contracts, which are different from quantum meruit and unjust enrichment, because it believed the trial court’s confusion stemmed from it. With respect to the quantum meruit claim, the Court concluded that the district court improperly relied on Wisconsin implied-in-fact contract principles. For example, the court excluded evidence of the contract negotiations, deeming them irrelevant because it was not a contract case. The Court disagreed, holding that, although not a contract case, evidence of the negotiations was relevant to the reasonable expectations of the plaintiff. With respect to the unjust enrichment claim, the lower court did properly identify the elements of the claim but the Court determined that it misapplied the equity element. The lower court looked only at the fact that Miller worked for eleven months without pay. The Court concluded that the inquiry should be much broader – the parties had significant negotiations about their expectations for Miller’s compensation and the need for a cash infusion. Again, much of the relevant evidence was disallowed by the court.

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