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

Zimmer manufactures orthopaedic reconstructive devices. One product, a replacement hip socket, was subject to a report of high failure rates. Zimmer announced preliminary findings in 2008, attributed the failures to improper surgical technique, stopped selling the product in the U.S. while preparing new instructions for implantation, and returned the item to the market. Owners of Zimmer stock sued, claiming that the problem was poor design or quality control, that Zimmer pretended otherwise to avoid hurting the price of its stock, and that Zimmer delayed revealing quality-control problems at its plant until after its 2008 quarterly report and earnings call. Zimmer had projected 10% to 11% revenue growth for the year and net earnings of $4.20 to $4.25 per share; months later it cut this projection to 8.5% to 9% growth and net earnings of $4.05 to $4.10 per share. The district court dismissed under the pleading standards of the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u-4. The Seventh Circuit affirmed, holding that plaintiffs failed to establish scienter. The FDA has never concluded that the product was defectively designed or made and never issued a warning or caution; quality control issues at pharmaceutical and medical-device producers are endemic.

Petitioners, citizens of the Philippines, entered the U.S. under nonimmigrant visas in 2003 and 2004. Wife’s employer petitioned on her behalf for alien-worker status, and she applied for adjustment of status She is a nurse, a skilled worker under 8 U.S.C. 1153(b)(3)(A)(i) or (ii). Husband applied for adjustment of status as her spouse. The petition for worker status was granted in late 2004. Subsequent applications for adjustment of status were denied because wife had not submitted evidence of certification to practice nursing; results of an English exam were pending. They reapplied for adjustment of status a few months later. The applications were denied. An IJ ordered removal, finding wife ineligible for adjustment of status under her second application because she filed it after living in the U.S. unlawfully for more than 180 days. The BIA dismissed an appeal and denied reconsideration. Petitioners moved to reopen in 2011, contending that they were newly eligible for adjustment of status because their daughter, a U.S. citizen age 21, had petitioned to adjust status on their behalf; those petitions had been approved. The Board denied the motion as untimely. The Seventh Circuit denied review, finding the Board’s interpretation of the statute and regulation reasonable.

Two officers stopped plaintiff’s adult son for a traffic violation and found crack cocaine in the car. Daniel attempted to flee, resulting in a physical altercation. Plaintiff, who lived close, was told by a neighbor, “you have to get down to the corner,” “they’re killing your son.” Plaintiff claims she was calmly asking about her son when she was accosted and arrested for no apparent reason. The officer testified that plaintiff was yelling, being aggressive, and leading the crowd in a charge, so they arrested her and placed her in the prisoner wagon for five to ten minutes before releasing her. In her suit under 42 U.S.C. 1983, the district court declined to exclude evidence of events that preceded her arrival and testimony that the events took place in a “high-crime area” and entered judgment for defendants. The Seventh Circuit affirmed, stating that the case boils down to a credibility contest that was properly reserved for resolution by the jury and upholding in the district court’s balancing of the probative value and prejudicial effect of the challenged evidence.

The suit, against law enforcement officers and the county, claimed denial of equal protection in failure to respond to complaints about gang harassment. The district court, interpreting the pro se complaint as concerning inadequate police protection, dismissed. The Seventh Circuit panel interpreted as charging defendants with arbitrarily providing less police protection to than to other residents, a "class of one" discrimination claim, but concluded that the claim failed, absent an allegation of personal animosity. On hearing case en banc, the court split three ways, affirming the dismissal by tie vote. Four judges (with a concurring opinion) stated that a "class of one" plaintiff must establish intentional discrimination by state actors who knew or should have known that they had no justification, based on their public duties, for singling him out for unfavorable treatment. The opinion stated that class-of-one suits should not be permitted against police officers or police departments. The complaint did not allege personal motives. "Rightly or wrongly they thought him a paranoid pest obsessed with motorcycle gangs." Four dissenters indicated that plaintiff should be allowed to replead and that the standard, which does not require mindreading," is the rational-basis test.

The taxpayer, a C-corporation with about 40 employees, claimed that its revenues ($5 million to $7 million a year) were offset by deductions for business expenses, primarily compensation paid to owner-employees, three of the firm's accountants. These founding shareholders owned more than 80 percent of the firm's stock in 2001 and received salaries from the firm that year that totaled $323,076. The firm reported taxable income of only $11,279 that year and, in the following year reported a loss of $53,271. The IRS did not question the salary deductions, but disallowed more than $850,000 in consulting fees paid in each of the three years to three entities owned by the founding shareholders, which passed the money on to the founding shareholders. The IRS reclassified the fees as dividends, resulting in a deficiency in corporate income tax of more than $300,000 for 2001 and similar deficiencies for the following two years. The Tax Court added the 20 percent statutory penalty for substantial understatement of income tax, 26 U.S.C. 6662(a),(b)(2). The Seventh Circuit affirmed, stating: "That an accounting firm should so screw up its taxes is the most remarkable feature of the case."

The State of Illinois, facing a significant and unprecedented fiscal deficit, brokered a series of compensation agreements with the exclusive bargaining representative for 40,000 state employees. The parties trimmed several hundred million dollars in fiscal years 2011 and 2012 by deferring general wage increases and instituting a voluntary furlough program. Despite these measures, the fiscal year 2012 budget did not contain sufficient appropriations for deferred wage increases due employees of 14 state agencies. The state froze the pay of those employees, repudiating agreements with the union. The district court dismissed a suit that alleged violations of the Contracts Clause and the Equal Protection Clause and state law. The Seventh Circuit affirmed, finding the Contracts Clause claim barred by the Eleventh Amendment. The court noted that the state’s actions did not bar a breach of contract suit. There was a rational relationship between those actions and a legitimate governmental purpose, precluding an equal protection claim.

Plaintiff, an inmate waiting to be keyed into his cell, was wounded by a pellet fired in an attempt to break up a fight. He showed his wound to an officer, who refused a medical technician's request to move plaintiff to the health care unit. The prison was on lockdown. The technician never returned with medical supplies. Plaintiff made additional requests, but claims that the technician stated that she was told by staff not to document any treatment for gunshot wounds and would not give her name. Plaintiff wrote an emergency grievance to the warden. Four days later, he was treated in the health care unit. The doctor expressed concern that plaintiff was not brought in on the day of his injury to prevent infection. Plaintiff claims that an internal affairs investigator was sent intimidate him into dropping his grievance. Plaintiff was placed on transfer to a facility where he had known enemies. The warden, grievance officer, and administrative officer determined that there was no emergency and no justification for compensation. His court-appointed attorney was allowed to withdraw and the district court dismissed plaintiff's 42 U.S.C. 1983 complaint. The Seventh Circuit reversed in part, holding that his claim for retaliation was prematurely dismissed.

After observing defendant and another selling crack cocaine, officers recruited a customer as a confidential informant and executed three controlled buys with audio and video surveillance. At trial defendant challenged the officers’ searches of the informant before the buys and failure to fingerprint baggies. The Seventh Circuit affirmed the conviction, rejecting a challenge to the sufficiency of the evidence, and the sentence of 158 months of incarceration, eight months above the recommended guidelines. The court rejected an argument based on the disparity between his sentence and that of his partner, who received only 134 months.

BMD was a subcontractor for Industrial, a subcontractor for Walbridge, the general contractor for construction of a factory near Indianapolis. Fidelity was surety for Industrial’s obligations to BMD. The project proceeded for about a year before the manufacturer declared bankruptcy. Walbridge failed to pay Industrial, Industrial failed to pay BMD, and Fidelity refused to pay BMD, which sued Fidelity on the bond. Their subcontract conditioned Industrial's duty to pay on its own receipt of payment. The district court held that the pay-if-paid clause required Industrial to pay BMD only if Industrial received payment from Walbridge, rejecting an argument that it controlled only the timing of Industrial's obligation. The court held that pay-if-paid clauses are valid under public policy and that Fidelity could assert all defenses of its principal. The Sixth Circuit affirmed. The subcontract expressly provides that Industrial's receipt of payment is a condition precedent to its obligation; it could have stated that BMD assumed the risk of the owner’s insolvency, but additional language was not necessary. Pay-if-paid clauses are valid under Indiana law and, under surety law, Fidelity may assert all defenses of its principal. Industrial was never obligated to pay BMD; BMD may not recover on the bond.

Capital One retained a collection agency, which sent plaintiff, its debtor, a dunning letter with notice of her debt validation rights. Plaintiff claims that the content as a whole over-shadowed the debt validation notice, violating the Fair Debt Collection Practices Act, 15 U.S.C. 1692g. The district court dismissed, stating that language like "act now" is only puffery and that placement of the notice on the back of the letter complies with the Act. The Seventh Circuit affirmed, upholding the district court's rejection of a request to conduct a consumer survey to prove that the letter was confusing.