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

The Twenty-first Amendment to the U.S. Constitution, section 2, forbids the “transportation or importation” of liquor into a state in violation of that state’s law. The Supreme Court has decreed that states may not infringe upon other provisions of the Constitution under the guise of exercising that power and now is considering whether the Twenty-first Amendment permits states to regulate liquor sales by limiting retail and wholesale licenses to persons or entities that have resided within the state for a specified time (Tennessee Wine). Illinois allows retailers with an in-state physical presence to ship alcoholic beverages to consumers anywhere within Illinois but will not allow out-of-state businesses to apply for a similar shipping license. Plaintiffs claimed violations of the Commerce Clause and Privileges and Immunities Clause. Illinois argued that because all retailers are barred from shipping from out-of-state, the provision does not discriminate against out-of-state retailers, and that that the differential treatment is necessitated by permissible Twenty-first Amendment interests. The district court dismissed the challenge. The Seventh Circuit reversed, noting material contested issues about the necessity for and justifications behind the Illinois statute, and the possible impact of the Tennessee Wine decision. The court characterized some of the state’s justification as possible protectionism. View "Lebamoff Enterprises, Inc. v. Rauner" on Justia Law

In 2007, OFTI sold a mill to TAK. During the financial crunch, Goldman Sachs cut $19 million from the financing. OFTI had promised clean title, but with the reduced financing, was unable to pay off all security interests. TAK agreed to issue negotiable notes, aggregating about $16 million, to OFTI, which would offer them as substitute security. The creditors accepted the notes. The transaction closed. OFTI promised to pay the notes. The lenders who released their security had the credit of both companies behind the notes. TAK was to hire an OFTI construction firm to build new mills; if TAK did not arrange for this construction and did not pay the notes, OFTI could cancel the notes and acquire a 27% interest in TAK. Neither paid the notes. The new mills did not materialize. OFTI demanded a 27% equity interest in TAK. Some formerly secured creditors have not been paid and retain promissory notes; OFTI does not possess any of the notes. The Seventh Circuit affirmed the denial of relief. A hold-harmless agreement effectively prevents OFTI from enforcing the notes against TAK; whatever TAK gave to OFTI would be returned in indemnification. The notes were designed as security for third parties, not as compensation for OFTI. Additionally, under Wisconsin’s UCC applicable to negotiable instruments, OFTI is not entitled to enforce the notes because it is not their holder, is not in possession of them, and is not entitled to enforce them under specified sections. If OFTI could use nonpayment as a reason to cancel the notes, they would be worthless to the creditors. View "Tissue Technology LLC v. TAK Investments LLC" on Justia Law

The Seventh Circuit affirmed defendant's motion to dismiss an action alleging that defendant tortiously interfered with plaintiff's employment contract and knowingly misrepresented company policy, both of which resulted in plaintiff's termination. The court held that the corporate officer privilege was inapplicable here; plaintiff failed to allege facts sufficient to establish the element of intentional inducement; the district court accurately held that plaintiff failed to state a claim for tortious interference with contract; plaintiff failed to allege a common law fraud claim; plaintiff was not entitled to leave to amend at this stage; and plaintiff's counsel's actions did not warrant sanctions under Judicial Code 1927. View "Webb v. Frawley" on Justia Law

Hotel Coleman owned a Holiday Inn Express franchise. Vaughn ran daily operations, including hiring, supervising, and discharging employees, and determining compensation. Frey and other Hotel workers were on Hotel Coleman’s payroll; the management agreement stated that all personnel “are in the employ of” the Hotel. Vaughn hired Frey in 2008. Frey alleged that Vaughn subjected her to unwelcome sexual comments and advances. Frey objected and complained to the housekeeping manager, but the behavior went unchecked. After Frey informed Vaughn that she was pregnant, Vaughn reduced her hours and took other steps in retaliation. During Frey’s maternity leave, she filed a charge with the EEOC. One week after she returned from leave, Vaughn fired her for allegedly stealing another employee’s phone. Frey sued under Title VII of the Civil Rights Act, 42 U.S.C. 2000e. The court accepted Vaughn’s argument that it was not an employer; granted Vaughn summary judgment on Frey’s sexual harassment, pregnancy discrimination, and Title VII retaliation claims; and entered summary judgment against Hotel Coleman. A jury awarded Frey $45,000 in compensatory damages; the court awarded her $13,520 in back pay. The Seventh Circuit vacated, finding that Vaughn was a joint employer. The existence of a joint employment relationship is analyzed under an “economic realities” test which considers the extent of the employer’s control over the worker; the kind of occupation and skill required; responsibility for the costs of operation; method of payment and benefits; and length of job commitment or expectations. View "Frey v. Hotel Coleman" on Justia Law

JTE, distributed products for Bimbo around Chicago under an agreement with no fixed duration that could be terminated in the event of a non-curable or untimely-cured breach. New York law governed all disputes. According to JTE, Bimbo began fabricating curable breaches in 2008 in a scheme to force JTE out as its distributor and install a less-costly distributor. Bimbo employees filed false reports of poor service and out-of-stock products in JTE’s distribution area and would sometimes remove products from store shelves, photograph the empty shelves as “proof” of a breach, and then return the products to their shelves. Once, a distributor caught a Bimbo manager in the act of fabricating a photograph. Bimbo assured JTE that this would never happen again. In 2011, Bimbo unilaterally terminated JTE’s agreement, citing the fabricated breaches, and forced JTE to sell its rights to new distributors. JTE claims that it did not learn about the scheme until 2013-2014. The district court dismissed JTE’s suit for breach of contract and tortious interference. The Seventh Circuit affirmed. Under the primary-purpose test, the agreement qualifies as a contract for the sale of goods, governed by the UCC’s four-year statute of limitations, not by the 10-year period for other written contracts. With respect to tortious interference, the court reasoned that JTE knew about the shelving incidents and should not have “slumber[ed] on [its] rights” until it determined the exact way in which it was harmed. View "Heiman v. Bimbo Foods Bakeries Distribution Co." on Justia Law

Sabafon, a telephone company based wanted cards to provide prepaid minutes of phone use plus a game of chance. Both the number for phone time and the symbols representing prizes were to be covered by a scratch-off coating. Emirat promised to supply Sabafon with 25 million high-security scratch-off cards. Emirat contracted with High Point Printing, which, in turn, engaged WS to do the work. Emirat paid High Point about $700,000. Three batches of the cards tested as adequately secure, but the testing company indicated that, under some circumstances, the digits and game symbols could be seen on some cards in a fourth batch. Emirat rejected the whole print run. High Point was out of business. Emirat sued WS, arguing that its settlement agreement with WS, after an initial run of cards was not correctly shipped, subjects WS to Emirat's contract with High Point. The Seventh Circuit affirmed summary judgment for WS, noting that with a sufficiently high-tech approach, any security can be compromised, but no one will spend $1,000 to break the security of a card promising $50 worth of phone time. The contract is silent and does not promise any level of security, except through the possibility that usages of trade are read into every contract for scratch-off cards. Even if WS assumed High Point’s promises, neither promised any higher level of security than was provided. WS’s cards passed normal security tests repeatedly. View "Emirat AG v. WS Packaging Group, Inc." on Justia Law

In 2010, BRC and Continental entered into a five‐year agreement. Continental was to sell to BRC approximately 1.8 million pounds of prime carbon black, annually, in approximately equal monthly quantities, with baseline prices for three grades, including N762, “to remain firm throughout the term.” Continental could meet any better offers that BRC received. Shipments continued regularly until March 2011, when demand began to exceed Continental’s production ability. Continental notified its buyers that N762 would be unavailable in May. BRC nonetheless placed an order. The parties dispute the nature of subsequent communications. Continental neither confirmed BRC’s order nor shipped N762. BRC demanded immediate shipment. Continental responded that it did “not have N762 available.” BRC purchased some N762 from another supplier at a higher price. Days later, Continental offered to ship N762 at price increases, which BRC refused to pay. After discussions, Continental sent an email stating that Continental would continue "shipping timely at the contract prices, and would not cut off supply” and would “ship one car next week.” Continental emphasized that the Agreement required it to supply about 150,000 pounds per month and that it already had shipped approximately 300,000 pounds per month. Continental shipped one railcar. Within a week, Continental emailed BRC seeking to increase the baseline prices and to accelerate payment terms.BRC sued, seeking its costs in purchasing from another supplier following Continental’s alleged repudiation. The Seventh Circuit rejected the characterization of the agreement as a requirements contract. On remand, BRC, without amending its complaint, pursued the alternative theory that the agreement is for a fixed-amount supply. The Seventh Circuit reversed summary judgment and remanded, finding the agreement, supported by mutuality and consideration, enforceable. The agreement imposed sufficiently definite obligations on both parties and was not an unenforceable "buyer's option." BRC can proceed in characterizing the contract as for a fixed amount. BRC altered only its legal characterization; its factual theory remained constant and Continental is not prejudiced by the change. View "BRC Rubber & Plastics, Inc. v. Continental Carbon Co." on Justia Law

Carter, through broker Perkins, opened a commodities trading account to secure the prices his Wyoming ranch would receive for its cattle using financial instruments (hedging). After Perkins changed offices, those accounts were part of a “bulk transfer” to Straits. Carter did not sign new agreements. At Perkins’s request, Carter opened another Straits account to speculate in other categories. After Carter and Perkins split a $300,000 profit, Carter instructed Perkins to close the account. Perkins did not do so but continued speculating on Treasury Bond futures, losing $2 million over three months. Straits liquidated Carter’s livestock commodities holdings to satisfy most of the shortfall and sued for the deficiency. Carter established his right to the seized funds and an award of attorney fees but the court significantly reduced damages, finding that Carter failed to mitigate by not closely reading account statements and trading confirmations. The Seventh Circuit affirmed the interpretation of the contract but remanded for recalculation of damages. Finding Carte responsible for losses resulting from Perkins's fraud would apply a guarantee or ratification that was never given. Fraud victims are not responsible for their agent’s fraud before they learn of unauthorized activity. Under Illinois law, the injured party must have actual knowledge before it must act to mitigate its damages. The court affirmed the attorney fee award under the Illinois Consumer Fraud and Deceptive Business Practices Act. View "Straits Financial LLC v. Ten Sleep Cattle Co." on Justia Law

Lester and William Lee created LIA in 1974 as a public company. William’s sons (Lester's nephews) later joined the business. LIA subsequently bought out the public shareholders, leaving Lester owning 516 shares; William owned 484. William created the Trust to hold his shares. The nephews served as trustees. Lester encountered difficulties with another company he owned, Maxim. He proposed that Maxim merge with LIA; William rejected this idea. Lester told the nephews, “I will screw you at every opportunity,” and made other threats, then, as majority shareholder, approved a merger of LIA and another company. The Trust asserted its rights under Indiana’s Dissenters’ Rights Statute. Lester gutted LIA to prevent the Trust from collecting the value of its LIA shares. He bought property from LIA on terms favorable to him and realized substantial profits. LIA subsidiaries were transferred for little or no consideration to Lester’s immediate family. Lester also perpetrated a collusive lawsuit, resulting in an agreed judgment that all LIA assets should be transferred to him and his companies. Lester did not disclose these actions to the nephews. In 2008, the Jennings Circuit Court conducted an appraisal in the dissenters’ rights action. Between the trial and the judgment, Lester dissolved LIA. The court entered a $7,522,879.73 judgment for the Trust. In 2012, Lester petitioned for Chapter 7 bankruptcy. The Trust initiated a successful adversary proceeding to pierce LIA’s corporate veil and hold Lester personally liable for the judgment. The Seventh Circuit affirmed, noting the facts were undisputed. View "William R. Lee Irrevocable Trust v. Lee" on Justia Law

Gianino Plastering operated in St. Louis for over 30 years but abruptly closed in 2012. Gianino’s son, Curt, who had worked at Gianino Plastering for over a decade, founded his own company, CWG, taking on some of Gianino’s customers and employees. CWG completed jobs that Gianino had begun. Curt went into business on the same day that a $196,940.73 judgment was entered against Gianino, arising out of Gianino’s 2009 collective bargaining agreement, which obligated the company to make regular contributions to the Welfare and Pension Funds. The Funds were blocked from collecting on their judgment because Gianino filed for bankruptcy. The Funds then sued CWG, asserting that CWG is Gianino’s successor and alter ego, liable for the judgment and for other ongoing violations of the collective bargaining agreement. After discovery, the district court ruled that the Funds had not produced enough evidence to proceed to trial. The Seventh Circuit reversed. The Funds proffered considerable evidence that a trier of fact could use to support its case against CWG. A reasonable factfinder could find both common ownership and control between the two entities; CWG’s capitalization, common equipment, and shared clients remain disputed matters for trial. The Funds have strong evidence of intent and undisputed evidence of knowledge. View "McCleskey v. CWG Plastering, LLC" on Justia Law