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

Fellowes filed a breach-of-contract suit against Changzou Fellowes, a business established in China, under the international diversity jurisdiction, 28 U.S.C. 1332(a)(2). Without discussing subject-matter jurisdiction, the district court entered a preliminary injunction in favor of Fellowes, despite the court’s assumption that Changzhou Fellowes had not been served with process. The Seventh Circuit vacated, reasoning that diversity jurisdiction is proper only if Changzhou Fellowes has its own citizenship, independent of its investors or members. Deciding whether a business enterprise based in a foreign nation should be treated as a corporation for the purpose of section 1332 can be difficult. Given the parties’ agreement that Changzhou Fellowes is closer to a limited liability company than to any other business structure in the U.S., it does not have its own citizenship and it does have the Illinois citizenship of its member Hong Kong Fellowes, which prevents litigation under the diversity jurisdiction. View "Fellowes Inc. v. Changzhou Xinrui Fellowes Office Equip. Co." on Justia Law

Massuda invested $4,000,000 in Concessions, Inc., which was part owner, with Tony Rezko, of a group of Panda Express restaurants. Rezko, who controlled several companies, hoped to expand the business. Rezko was indicted and convicted on federal fraud and bribery charges, for which he received a lengthy prison sentence in 2011. Rezko’s real estate ventures collapsed. Massuda filed suit against Rezko’s corporations and associated people, raising claims of unjust enrichment, fraud, and aiding and abetting a breach of fiduciary duty. The district court concluded that all of Massuda’s claims, except portions of her fraud claim, were derivative, and on that ground dismissed those counts with prejudice for failure to state a claim. Massuda declined to amend her fraud allegations, which were then dismissed. The Seventh Circuit affirmed, rejecting a claim that if the holder of a majority interest acts in a way that helps him and hurts the minority, there is a direct claim. A direct claim exists when a majority shareholder engages in wrongdoing in such a way as to dilute the voting power of the minority shareholders; a dilution of voting power is a direct harm to the shareholders that is not felt by the company. View "Massuda v. Panda Express Inc." on Justia Law

Burzlaff bought a “Stallion” motorized tricycle from Thoroughbred Motorsports in 2009 for $35,000. When Burzlaff reported the first problems to Thoroughbred, the company instructed him to take his vehicle to a Ford dealer for warranty repairs. Burzlaff did so repeatedly. After the vehicle had been out of service for repairs for 71 days during the first year, Burzlaff demanded, under the Wisconsin Lemon Law, that Thoroughbred replace the vehicle or refund his purchase price. Thoroughbred refused. Further efforts to repair the vehicle at the Thoroughbred factory in Texas failed to correct the defects. Burzlaff sued Thoroughbred under the federal Magnuson-Moss Warranty Act, 15 U.S.C. 2301, and the Wisconsin Lemon Law, Wis. Stat. 218.0171. The district court awarded double damages plus costs and attorney fees for a total judgment of $95,000 under the more generous provisions of the state law. The Seventh Circuit affirmed, rejecting challenges to the jury instructions on the Lemon Law claim, the sufficiency of the evidence on that claim, and the submission of the Magnuson-Moss claim to the jury. View "Burzlaff v. Thoroughbred Motorsports Inc." on Justia Law

Freed and Weiss were the sole managing members of a legal practice, CLG. Freed claims to have provided CLG’s operating capital through loans of $12 million. Under the partnership agreement between the two, Freed was entitled to repayment before CLG could make distributions to other members. According to Freed, shortly after he received partial repayment from CLG in 2011, Weiss began taking steps to terminate Freed’s control of CLG and to create a new limited liability company without him, by moving CLG funds held by Chase into other accounts, to which Freed lacked access. Freed demanded that Chase freeze CLG accounts. Freed contends that Chase employees informed Weiss, who then removed all funds from Chase. Freed sued Weiss in state court, alleging improprieties primarily regarding access to records and funds, breach of fiduciary duties and of the partnership agreement, and seeking a declaration of voluntary termination of CLG. Weiss counterclaimed, seeking to expel Freed from CLG. Freed sued Chase claiming that Chase facilitated Weiss’s unauthorized transfer, tortious interference with contractual rights, and aiding Weiss’s breaches of fiduciary duties. The suit was removed to federal court and Chase brought third-party claims for indemnity or contribution. Freed filed suit in federal court against Weiss, his father, and CLG, asking the court to force CLG to purchase Freed’s distributional interest. The district court found that abstention in the federal court cases was proper and stayed both pending the outcome of the state court proceedings. The Seventh Circuit agreed.View "Freed v. Weiss" on Justia Law

Indiana pawnbrokers must obtain license from the state’s Department of Financial Institutions (DFI). Saalwaechter, owns Fares Pawn in Evansville, Indiana. He applied for a license in 2009, but DFI denied his application, citing concerns about previous operations on the property and about his store manager’s criminal history. The property has been used as a pawnshop for about 20 years, but different businesses with overlapping ownership. Saalwaechter received a license after he signed an agreement to comply with certain conditions, in particular not employing the manager. Saalwaechter sued DFI, alleging violation of the Equal Protection Clause of the Fourteenth Amendment. Saalwaechter did not contend that DFI treated him unfavorably on account of some identifiable characteristic, such as age, sex, or race, but that the state had singled him out for disparate treatment without a rational basis. The district court granted DFI summary judgment on the “class of one” claim, finding that no reasonable jury could conclude that DFI treated Saalwaechter differently from similarly situated applicants without a rational reason. The Seventh Circuit affirmed. View "Fares Pawn, LLC v. IN Dep't of Fin. Insts." on Justia Law

The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) is composed of industry members, academicians, design professionals, and government officials. Its standards provide guidelines for refrigeration processes and design and maintenance of energy efficient buildings. Thermal manufactures liner insulation systems for nonresidential metal buildings. Thermal’s liner systems compete with “over-the-purlin systems,” which comprise about 90% of the market for metal building roof insulation systems. Since 1999, ASHRAE has published Standard 90.1, which rates the energy efficiency of insulation assemblies and has considerable influence in the commercial building industry. In 2011, the Department of Energy determined that Standard 90.1 would be the national commercial building reference standard; within two years every state had to certify that it had adopted a commercial building code that is at least as stringent as Standard 90.1. Until 2010, Standard 90.1 treated non-laminated metal building insulation assemblies, like Thermal’s liner systems, differently from other insulation assemblies. Owners had to obtain special permission to install liner systems. Thermal alleged that representatives of the North American Insulation Manufacturer’s Association and the Metal Building Manufacturers Association, both of which have voting members on ASHRAE’s Envelope Subcommittee, procured this result by providing inaccurate data. ASHRAE declined to accept results of tests commissioned by Thermal. Thermal sued, alleging unfair competition, violation of Wisconsin’s Deceptive Trade Practices Act, antitrust violations, and violation of the Lanham Act. The court rejected all of the claims. The Seventh Circuit affirmed. View "Thermal Design, Inc. v. Am. Soc'y of Heating, Refrigerating & Air-Conditioning Eng'rs, Inc." on Justia Law

Arnold, a former officer of two corporate defendants, held significant stock in each. In 1999, Arnold sued both in Illinois state court, claiming shareholder oppression. In 2006, the parties allegedly agreed to settle, but never executed settlement documents. The defendants have not paid any of the $207,500 purportedly required. The court dismissed without deciding whether the case had been settled. A month later, Arnold agreed to sell his stock to KJD for $290,000. KJD advanced $100,000; Arnold represented that he had good title. KJD notified the defendants that it had purchased the stock and wished to inspect the corporate books. They did not respond, but moved to vacate the dismissal, alleging that, under the alleged settlement, Arnold had transferred his stock to the corporations. They also filed suit before a different judge, resulting in a default judgment ordering Arnold to execute settlement papers and comply with the agreement. The Appellate Court affirmed. KJD was never joined as a party. The court stayed proceedings in the original action. Arnold filed a FRCP Rule 22 interpleader action, naming the corporations and KJD, stating that he made no claim to continued ownership and was willing to transfer the stock to whichever defendant the court determined to have superior right. Invoking the Rooker-Feldman doctrine, the district court dismissed, but ordered Arnold to return the $100,000 advance payment. The Seventh Circuit vacated and remanded, reasoning that the interpleader action does not attack the state court judgment itself, so further proceedings are necessary.View "Arnold v. KJD Real Estate, LLC" on Justia Law

Brothers Patrick and Thomas each owned one‐third of the stock of Commercial Light, a Chicago electrical contractor. Between 1982 and the 2008 sale of the company, Thomas was the CEO, board chairman, and president. The other officers were the company’s treasurer, and its executive vice‐president. The board of directors had only two members: Thomas and a lawyer. Patrick took no part in the company’s management. Patrick sued, claiming that when Morris became executive vice‐president in 1992, he, with Thomas’s approval, started jacking up the salaries and bonuses paid so that the compensation of the three officers soared, totaling $22 million between 1993 and 2000, and that the lawyer on the board rubber‐stamped Thomas’s compensation decisions. The Seventh Circuit affirmed a jury verdict finding breach of fiduciary duty. The jury did not have to find that the compensation was excessive in order to find a breach of fiduciary duty by concealment. Illinois allows as a remedy for breach of fiduciary duty a forfeiture of all the fiduciary’s earnings during the period of breach. The court speculated on why the highly-educated Patrick did not discover the concealment until several years after the sale, but noted that the appeal only concerned jury instructions. View "Halperin v. Halperin" on Justia Law

KBP is a Polish entity, formed to develop a business park near Krakow. Plaintiffs are KBP shareholders and defendants are either current or former shareholders. The plaintiffs alleged a fraudulent scheme to loot the company by payments for services never performed and sought relief under RICO, 18 U.S.C. 1962(a)–(d), with supplemental state claims for fraud, conversion, breach of fiduciary duty, tortious interference with prospective business advantage, civil conspiracy, violation of the Illinois Uniform Fraudulent Transfer Act, and for an accounting. The defendants allegedly invested some of their proceeds in a Chicago subdivision. Polish authorities charged the defendants for crimes related to KBP. In the RICO civil suit, the defendants’ abuse of the discovery process resulted in several sanctions rulings; when the plaintiffs objected to the magistrate’s relatively lenient decisions, the district judge found the sanctions too light and imposed more onerous ones, including contempt and an order barring the defendants from using certain evidence, and ultimately a $413,000,000 default judgment. The Seventh Circuit affirmed.View "Domanus v. Lewicki" on Justia Law

IMCC loaned Harbins $60 million to buy Georgia land to construct a shopping center. In addition to a mortgage, IMCC obtained a guaranty from Chivas, providing that if IMCC “forecloses … the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price.” Harbins defaulted; IMCC foreclosed in a nonjudicial proceeding, involving a public auction conducted by the sheriff after public notice. IMCC successfully bid $7 million and filed a petition to confirm the auction. Unless such a petition is granted, a mortgagee who obtains property in a nonjudicial foreclosure cannot obtain a deficiency judgment if the property is worth less than the mortgage balance owed. A Georgia court denied confirmation. Chivas refused to honor the guaranty. A district court in Chicago awarded IMCC $17 million. The Seventh Circuit affirmed, noting that the Georgia statute “is odd by modern standards,” but does not prevent a suit against a guarantor. The agreement guaranteed IMCC the difference between what it paid for the land and the unpaid balance of the loan, even if the land is worth more than what IMCC paid for it. The agreement is lawful under Georgia and Illinois law. View "Inland Mortg. Capital Corp v. Chivas Retail Partners, LLC" on Justia Law