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

This case revolves around a real estate Ponzi scheme run by Jerome and Shaun Cohen through their companies, EquityBuild, Inc. and EquityBuild Finance, LLC (EBF), from 2010 to 2018. The Cohens sold promissory notes to investors, each note representing a fractional interest in a specific real estate property. The properties were mostly located in underdeveloped areas of Chicago and were secured by mortgages. As the scheme became unsustainable, the Cohens began offering opportunities to invest in real estate funds. BC57, LLC, a private lender and investor, lent approximately $5.3 million to EquityBuild, allegedly in exchange for a first mortgage on five properties already owned by EquityBuild and subject to preexisting liens from individual investors.The Securities and Exchange Commission (SEC) filed suit against the Cohens, EquityBuild, and EBF after the scheme collapsed in 2018. A court-appointed receiver developed a plan for the recovery and liquidation of all remaining, recoverable receivership assets. The receiver sold the five properties and now holds the proceeds, over $3 million, pending the resolution of the claims process. The individual investors whose loans BC57’s investment purportedly paid off claim priority to those proceeds, arguing that they never received payment or released their interests, despite the releases signed by Shaun Cohen. BC57 disagrees and asserts that it has priority. The district court awarded priority to the individual investors, finding that the mortgage releases were facially defective and that EBF lacked the authority to execute them.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that under the Illinois Mortgage Act, payment alone does not extinguish any pre-existing interest absent a valid release. The court also found that the releases purportedly executed by EBF were facially invalid. The court concluded that the individual investors maintain their interests in these five properties. View "SEC v. BC57, LLC" on Justia Law

This case involves a dozen gas stations in the Green Bay, Wisconsin area, who alleged that Costco Wholesale Corporation violated a Wisconsin law prohibiting the sale of gasoline below a statutorily defined cost. The plaintiffs sought an injunction to prevent Costco from selling gasoline below that level and damages of over half a million dollars each. Costco argued that it lowered its prices to match a competitor's price, which the statute allows, and that the plaintiffs failed to establish the causal element of the statutory claim.The case was initially heard in the United States District Court for the Eastern District of Wisconsin, which sided with Costco and awarded it summary judgment. The plaintiffs appealed this decision, challenging both the summary judgment and an evidentiary ruling made earlier in the proceedings.The United States Court of Appeals for the Seventh Circuit affirmed the lower court's decision. The court found that for 238 of the 256 days in question, Costco was immune from liability under the "meeting competition" exception in the Wisconsin law. For the remaining 18 days, the court found that the plaintiffs failed to show that they were injured or threatened with injury as a result of Costco's actions. The court also upheld the lower court's denial of the plaintiffs' request to supplement their expert report. View "Pit Row, Inc. v. Costco Wholesale Corporation" on Justia Law

The case involves a dispute between GeLab Cosmetics LLC, a New Jersey-based online nail polish retailer, and Zhuhai Aobo Cosmetics, a China-based nail polish manufacturer. The founders of GeLab, Xingwang Chen and Shijian Li, are both Chinese citizens. The dispute centers around the ownership of GeLab and allegations of trade secret theft. According to Chen, he and Li founded GeLab with Chen owning 60% and Li 40%. They entered a joint venture with Zhuhai, which was supposed to invest in GeLab for an 80% ownership stake. However, Chen alleges that Zhuhai never sent the money and instead began using low-quality materials for GeLab's products, selling knock-off versions under its own brand, and fraudulently claiming majority ownership of GeLab. Zhuhai, on the other hand, asserts that Chen was its employee and that it owns 80% of GeLab.The dispute first began in China, where Li sued Chen for embezzlement. Chen then sued Li, Zhuhai, and Zhuhai's owners in New Jersey state court, alleging that he had a 60% controlling interest in GeLab and that Zhuhai had no ownership interest. The state defendants counterclaimed, seeking a declaratory judgment that Zhuhai owns 80% of GeLab. GeLab then filed a second action in New Jersey against Li alone. The state court consolidated the two cases.While the New Jersey proceedings were ongoing, GeLab filed a federal lawsuit in the U.S. District Court for the Northern District of Illinois against Zhuhai and its owners, alleging violations of the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act. The defendants responded that Zhuhai owns GeLab and that it cannot steal trade secrets from itself. The district court stayed the federal case, citing the doctrine of Colorado River Water Conservation District v. United States, reasoning that judicial economy favors waiting for the New Jersey court to determine who owns the company. GeLab appealed the stay.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision to stay the proceedings. The court found that the federal and state cases were parallel as they involved substantially the same parties litigating substantially the same issues. The court also found that exceptional circumstances warranted abstention, with at least seven factors supporting the district court's decision. These factors included the inconvenience of the federal forum, the desirability of avoiding piecemeal litigation, the order in which jurisdiction was obtained by the concurrent fora, the source of governing law, the adequacy of state-court action to protect the federal plaintiff's rights, the relative progress of state and federal proceedings, and the availability of concurrent jurisdiction. View "GeLab Cosmetics LLC v. Zhuhai Aobo Cosmetics Co., Ltd." on Justia Law

This case involves a dispute over unpaid rent for a department store in an Illinois mall. The store was operated by CPS Partnership, which leased the retail space from WEC 98C-3 LLC. Saks Inc. guaranteed that it would pay the rent if CPS could not. However, when CPS stopped paying rent, Saks did not make any payments to WEC. This led to WEC defaulting on its mortgage, and the property was purchased by 4 Stratford Square Mall Holdings, LLC (“Stratford”) at a foreclosure auction. Initially, WEC sued Saks for damages. Later, Stratford intervened with its own claim for damages. The district court ruled only on Stratford’s claim for unpaid rent, finding that it was entitled to payment from Saks.The district court's decision was appealed to the United States Court of Appeals for the Seventh Circuit. Saks argued that Stratford lacked standing to sue, that the district court erred in certifying its judgment for immediate appeal, and that the district court erred in rejecting Saks’s affirmative defenses. The appellate court found that Stratford did have standing to sue Saks, and the district court properly certified its judgment for appeal. On the merits, the appellate court concluded that Saks could not mount any of its desired defenses as it had waived its right to present affirmative defenses to liability in the guaranty that it signed. Therefore, the appellate court affirmed the district court’s judgment. View "WEC 98C-3 LLC v. SFA Holdings Inc." on Justia Law

The case involves Circle City Broadcasting I, LLC, a local television broadcasting network operating in Indianapolis, which owns two local television stations—WISH-TV and WNDY. The company is majority-owned by DuJuan McCoy, a Black man. The dispute arose when DISH and DirecTV Network declined to pay broadcast fees to Circle City for rights to carry the company’s two Indianapolis-based television stations. Circle City alleged that the decisions reflected discrimination against its majority owner, DuJuan McCoy, and thus discrimination against the company itself.Previously, the United States District Court for the Southern District of Indiana entered summary judgment for DISH and DirecTV, concluding that Circle City failed to identify evidence permitting a jury to find that the decisions not to pay the broadcast fees reflected anything other than lawful business choices responsive to dynamics of the television broadcast market.The United States Court of Appeals For the Seventh Circuit affirmed the lower court's decision. The court found that Circle City failed to produce evidence that would allow a jury to find that DISH or DirecTV's conduct during the contractual negotiations reflected racial discrimination. The court concluded that DISH and DirecTV declined to pay fees for rights to broadcast WISH and WNDY because Circle City—unlike Nexstar—as the new owner of both stations lacked the market power to demand the fees. The court also found that Circle City fell short of demonstrating any pretext in DISH and DirecTV’s explanations for choosing not to pay retransmission fees. View "Circle City Broadcasting I, LLC v. DISH Network L.L.C." on Justia Law

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

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

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

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

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