Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Articles Posted in Business Law
by
The case involves a dispute between the Trustee for the bankrupt company BWGS, LLC and BMO Harris Bank N.A. and Sun Capital Partners VI, L.P. The Trustee sought to avoid a payment made by BWGS to BMO Harris, which was used to finance the acquisition of BWGS by Sun Capital's subsidiary. The Trustee argued that the payment constituted a constructively fraudulent transfer under the U.S. Bankruptcy Code and Indiana state law.The United States Court of Appeals for the Seventh Circuit had to address two novel issues: whether Section 546(e) of the Bankruptcy Code, which protects certain transactions made “in connection with a securities contract,” applies to transactions involving private securities; and, if so, whether it also preempts state law claims seeking similar relief.The Court held that Section 546(e) does apply to transactions involving private securities and does preempt state law claims seeking similar relief. Consequently, the Trustee's attempt to avoid the payment under the Bankruptcy Code and Indiana law was barred by Section 546(e). The Court also rejected the Trustee's argument that he could recover the value of the payment from Sun Capital under a different provision of the Bankruptcy Code, holding that this claim was also preempted by Section 546(e). The Court thus affirmed the lower court's decision to dismiss the Trustee's complaint with prejudice. View "Petr v. BMO Harris Bank N.A." on Justia Law

by
The case concerns a dispute between LKQ Corporation and its former Plant Manager, Robert Rutledge, who resigned from the company and joined a competing firm. LKQ sought to recover proceeds Rutledge realized from multiple stock sales over many years, based on a forfeiture-for-competition provision in their Restricted Stock Unit Agreements.The key legal issue revolves around the applicability of Delaware law on forfeiture-for-competition provisions. These provisions require former employees to forfeit a monetary benefit upon joining a competitor. The Delaware Supreme Court held in a recent case that such provisions are not subject to a reasonableness review. However, the United States Court of Appeals for the Seventh Circuit found it unclear whether this ruling applies outside the context of highly sophisticated parties.The Court of Appeals affirmed the lower court's judgment in favor of Rutledge on the breach of the Restrictive Covenant Agreements and unjust enrichment claims. However, due to the complexity of the Delaware law issue, the Court decided to certify questions to the Delaware Supreme Court for clarification. Specifically, the certified questions ask whether the Delaware Supreme Court's ruling on forfeiture-for-competition provisions applies outside the limited partnership context and, if not, what factors inform its application. View "LKQ Corporation v. Rutledge" on Justia Law

by
The case involves Suzy Martin, the owner and president of Smart Elevators Co., a certified minority- and woman-owned elevator service and repair company. The company, which historically did most of its business with the State of Illinois and the City of Chicago, saw its customer base change after a whistleblower complaint alleged that Martin and her company engaged in a bribery and kickback scheme with a University of Illinois Chicago employee. This led to an investigation by the Office of the Executive Inspector General for the Agencies of the Illinois Governor (OEIG), which concluded that Martin, Smart Elevators, and the University employee had engaged in a kickback scheme that violated Illinois ethics law and University policy and recommended that the University sever ties with Martin and her company.As a result of the report, the State and City ceased doing business with Martin and Smart Elevators, causing the company to lose millions in preexisting and potential contracts. Martin sued several State and City entities and officials under 42 U.S.C. § 1983, bringing “stigma-plus” procedural due process claims under the Fourteenth Amendment. The district court dismissed her amended complaint with prejudice.Upon appeal, the United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court concluded that Martin's occupation was operating an elevator service and repair business, not just providing those services specifically to the State or City. The court also found that despite the loss of State and City contracts, Martin had not been denied her liberty to pursue her occupation as she remained the owner and operator of Smart Elevators, which continued to operate and even managed to secure a contract with the Department of Justice in 2021. As such, the court found no violation of Martin's occupational liberty rights. View "Martin v. Haling" on Justia Law

by
The case in question originated in the United States Court of Appeals for the Seventh Circuit. The dispute arose after the dissolution of a business partnership between Gregory Kleynerman and Scott Smith, which resulted in Smith obtaining a state court judgment of $499,000 against Kleynerman. This judgment was secured by Kleynerman's membership interest in Red Flag Cargo Security Systems LLC. Following this, Kleynerman filed for bankruptcy and valued his interest in Red Flag at $0. Smith argued in the bankruptcy court that the state court's judgment was a result of Kleynerman's fraud and thus could not be discharged. However, the bankruptcy court rejected this argument.After the bankruptcy case was closed, Kleynerman asked the state court to deem the $499,000 judgment discharged. Smith contended that under Wisconsin law, only debts secured by real property can be avoided. The state court agreed with Smith, which led Kleynerman to request the bankruptcy court to reopen the case and clearly state that both the $499,000 debt and the lien on Kleynerman’s interest in Red Flag no longer existed.The bankruptcy court reopened the case and the district court affirmed the decision. The appellate court agreed with the lower courts, stating that the bankruptcy judge had authority to reopen the case, and that Kleynerman had cause for reopening.Furthermore, the court held that the value of Kleynerman’s interest in Red Flag was a matter for the bankruptcy judge to decide before the discharge. Smith had an opportunity to object to Kleynerman's valuation of his interest in Red Flag but failed to do so until after the bankruptcy court had entered its discharge order. The court concluded that Smith's post-discharge subpoenas seeking information about the value of Kleynerman’s interest in Red Flag were a fishing expedition and an exercise in harassment, which was properly rejected by the bankruptcy judge. Therefore, the court affirmed the decision of the lower courts. View "Smith v. Kleynerman" on Justia Law

by
Aluminum Recovery Technologies (ART) operates a smelter and during a renovation, one of its furnaces failed, causing molten aluminum to escape and damage the plant and the furnace itself. The insurance company, ACE American Insurance, paid for some of the damages but not the cost of replacing the furnace's refractory. ART sued ACE, arguing that an explosion in the furnace caused the damage and thus, the insurance company should cover the refractory replacement costs. However, the insurer argued that the policy specifically excludes coverage for any damage to the refractory lining unless it directly results from specific perils such as fire, lightning, windstorm, hail, or explosion. The United States Court of Appeals For the Seventh Circuit affirmed the district court's decision in favor of ACE. The court held that the explosion did not necessarily cause the leak, and ART failed to provide engineering evidence to support its claims. Additionally, the court found that ART had consented to the investigation protocol proposed by the insurer's experts, which involved destructive testing that led to the need for the refractory's replacement. Therefore, the insurer was not responsible for the additional expenses incurred due to the replacement of the refractory lining. View "Aluminum Recovery Technologies, Inc. v. Ace American Insurance Co." on Justia Law

by
The case involves Green Plains Trade Group, LLC, who appealed the district court's dismissal of their claim for tortious interference with contract against Archer Daniels Midland Company (ADM). Green Plains alleged that ADM unlawfully manipulated the price of ethanol, causing Green Plains to receive less money for the ethanol it sold to third parties. The district court dismissed the case, saying Green Plains hadn't specified the contracts ADM interfered with or shown a breach of contract. Green Plains argued that under Nebraska law, tortious interference doesn't always require a breach and that ADM's actions made its performance under its contracts "more expensive or burdensome."The United States Court of Appeals for the Seventh Circuit vacated the district court's dismissal and remanded the case for further proceedings. The Court of Appeals found that while the district court was correct to require Green Plains to plead more than general allegations about its contracts, it may have required too much specificity. The Court of Appeals also found that the district court erred in not recognizing section 766A of the Restatement (Second) of Torts as part of Nebraska's law, which allows a plaintiff to bring a successful tortious interference with contract claim even if the contract was not breached. The Court of Appeals held that the district court must apply the law as it believes the highest court of the state would apply it if the case were now before it, and it should not fear adopting the less restrictive approach if it believes the state's highest court would adopt that approach. View "Green Plains Trade Group, LLC v. Archer Daniels Midland Co." on Justia Law

by
The Shelbyville Post Office is the closest one to Ellison’s home and the largest in that area of Indiana. Ellison keeps a P.O. box at Shelbyville or her non-profit organization, which educates the public about accessibility for people with disabilities. Ellison cannot enter the Shelbyville Post Office because it has only one customer entrance: at the top of its front steps. Ellison can ask for help from the loading dock or from a van-accessible parking space, use the Postal Service’s website, or visit wheelchair-accessible locations in surrounding towns. After multiple complaints about the inconvenience of those options, the City of Shelbyville offered to pay for a ramp at the front entrance. The Postal Service declined, citing a policy of refusing donations for exterior physical improvements.In a suit under the Rehabilitation Act, 29 U.S.C. 794(a), the district court entered summary judgment, concluding that Ellison could meaningfully access the program through its website and three wheelchair-accessible locations within a 15-minute drive of her home. The Seventh Circuit vacated and remanded for consideration of whether Ellison’s proposed accommodation (a ramp) is reasonable. The Shelbyville Post Office does not provide a significant level of access, and the alternative locations are further away and open for fewer hours than Shelbyville. View "Ellison v. United States Postal Service" on Justia Law

by
Russell is an orthopedic trauma surgeon who invented numerous products such as bone substitutes and surgical devices. He, along with other inventors were shareholders in CelgenTek, a medical device firm. According to the Inventors, Russell’s creations were game-changers in the field of orthopedics. In 2015, the Inventors entered into an agreement with Zimmer as the exclusive distributor of certain CelgenTek products. CelgenTek was experiencing dire financial problems. Zimmer acquired a 10% ownership of CelgenTek for $2 million and purchased the remaining 90% in 2016. The Inventors retained the right to a small percent of the net yield on the products it developed (earnout products). Zimmer agreed that it would use “Commercially Reasonable Efforts,” as defined in the Agreement, to sell the earnout products. From the date the agreement through 2019, Zimmer paid the Inventors approximately $130,000 in earnout payments. The Inventors sued, alleging that Zimmer failed to use Commercially Reasonable Efforts.The Seventh Circuit affirmed that the Inventors failed to state a claim. Many of Zimmer's 21 complained-of actions and inactions reflect how the Inventors hoped Zimmer would have marketed and sold the earnout products or what the Inventors would have done had they not put Zimmer in charge of sales. Others allege broken promises that Zimmer purportedly made before the signing of the agreement that are not actionable due to the agreement’s integration clause. View "Russell v. Zimmer, Inc." on Justia Law

by
Until recently, under every McDonald’s franchise agreement, the franchise operator promised not to hire any person employed by a different franchise, or by McDonald’s itself, until six months after the last date that person had worked for McDonald’s or another franchise. A related clause barred one franchisee from soliciting another’s employee (anti-poach clauses). In a suit under the Sherman Act, 15 U.S.C. 1, the plaintiffs worked for McDonald’s franchises while these clauses were in force and were unable to take higher-paying offers at other franchises. They contend that the anti-poach clause violated the antitrust laws.The district court dismissed, rejecting plaintiffs’ “per se” theory, stating that the anti-poach clause is not a “naked” restraint on trade but is ancillary to each franchise agreement—and, as every new restaurant expands output, the restraint was justified. The court deemed the complaint deficient under the Rule of Reason because it does not allege that McDonald’s and its franchises collectively have power in the market for restaurant workers’ labor.The Seventh Circuit. The complaint alleges a horizontal restraint; market power is not essential to antitrust claims involving naked agreements among competitors. The court noted that there are many potentially complex questions, which cannot be answered by looking at the language of the complaint but require careful economic analysis. View "Turner v. McDonald's USA LLC" on Justia Law

by
Menasha licensed Nulogy’s software, Nulogy Solution. Years later, Deloitte reviewed Menasha’s systems in hopes of better integrating Nulogy Solution into Menasha’s other software. Deloitte and Menasha asked Nulogy to share proprietary information. Nulogy alleges that the two used this information to reverse engineer an alternative to Nulogy Solution. In 2020, Nulogy filed suit in Ontario’s Superior Court of Justice, alleging breach of contract by Menasha and violations of trade secrets by Menasha and Deloitte. Deloitte objected to jurisdiction in Canada.Nulogy voluntarily dismissed its trade secret claims against both companies and refiled those claims in the Northern District of Illinois under the Defend Trade Secrets Act, 18 U.S.C. 1836(b). The breach of contract claims against Menasha remained pending in Canada. Menasha moved to dismiss the U.S. trade secrets litigation. Menasha’s contract with Nulogy contained a forum selection clause, identifying Ontario, Canada. Deloitte did not join that motion but filed its own motion to dismiss arguing failure to state a claim. The district court dismissed the claims against Menasha but reasoned that the forum non-conveniens doctrine required the dismissal of the entire complaint, including the claims against Deloitte.The Seventh Circuit affirmed the dismissal of Nulogy’s claims against Menasha but reversed the Deloitte dismissal. Deloitte has no contractual agreement with Nulogy identifying Canada as the proper forum and continues to insist that Canadian courts do not have jurisdiction. View "Nulogy Corp. v. Menasha Packaging Co., LLC" on Justia Law