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

Plaintiff, an Illinois corporation, filed suit for conversion against a corporation based in South Korea and individuals. Although the defendants were served, there was no formal response. The individual defendants sent a letter asserting that they had no connection to the corporation and requesting dismissal. Several months later the court entered default judgment in the amount of $2,916,332. About a year later the defendants filed appearances and a motion to vacate for lack of personal jurisdiction. The district court denied the motion. The Seventh Circuit reversed and remanded. After noting that jurisdiction can be contested in the original proceeding or in a collateral action, the court concluded that the motion was not untimely. The letter did not constitute an appearance by the individuals and the corporation was not capable of making a pro se appearance. The defendants have submitted affidavits concerning whether they had "minimum contacts" with Illinois that must be considered by the court.

The Bureau of Alcohol, Tobacco, Firearms and Explosives revoked a Wisconsin pawn and gun shop's license to sell firearms after it rejected an appeal from a finding that the shop willfully violated record keeping requirements of the Gun Control Act, 18 U.S.C. 923. The district court and Seventh Circuit affirmed. The appropriate standard for willfulness for revoking a firearms dealerâs license is purposeful disregard of, or plain indifference to, a known legal obligation; the dealer had notice of those obligations and disregarded them. The infrequency of errors, compared to the number of transactions, does not disprove willfulness.

Defendants faxed unsolicited advertisements to plaintiff and others, violating the Telephone Consumer Protection Act, 47 U.S.C. 227. One of the recipients filed a proposed class action in Wisconsin, but dismissed its complaint after the four-year limitations period had run, but before the class was certified. Plaintiff's motion to intervene was denied. The district court denied a motion to dismiss plaintiff's subsequent complaint, reasoning that the limitations period was tolled by the state court filing. The Seventh Circuit affirmed on interlocutory appeal.

Plaintiff makes glucose monitors and other diabetes-related products that incorporate software written by defendant, under a contract that entitles it to use the software for two years after the contractâs initial term, 2006-2010, and any extension. It also gives plaintiff a right of first refusal should defendant agree to sell its stock or assets to one of plaintiffâs competitors "during the term of this Agreement." Defendant would not extend the contract after the original expiration date. Plaintiff learned that investors in defendant were negotiating to sell stock to a company that plaintiff considers a competitor. Defendant asserted that, because the transaction would not close until 2011, the right of first refusal did not apply. Plaintiff sought an injunction pending arbitration. Based on concerns about irreparable harm to each party, the district court entered an injunction to allow the sale to proceed, subject to a requirement that plaintiff be allowed to use the software through 2012; the injunction expires when the arbitrator renders a decision. The Seventh Circuit affirmed, modifying to add conditions to ensure that defendant remains a separate firm so that the transaction can be undone if the arbitrator rules in plaintiffâs favor.

The company was established in 1998 to develop systems for high-speed Internet connections for home computers. After a decision to not respond to an acquisition offer, the company was in financial trouble by 2000 and took an $11 million loan for 90 days and a second loan for $9 million, on which it defaulted. The company exchanged its assets for stock in an amount that would have satisfied creditors and preferred stockholders. The stock, the company's only asset in bankruptcy, fell to a value less than the claims of creditors. Common shareholders brought suit. The district court entered summary judgment for the defendants. The Seventh Circuit reversed and remanded, stating that the company's failure was not likely solely the result of the "burst of the dot-com bubble." Even if the directors were excused from liability for failure to exercise due care, as permitted by Delaware law, there was evidence of disloyalty, which was not excused. Evidence of disloyalty switched the burden of proving "entire fairness" with respect to the loans on the directors. There was enough evidence of causation and that certain preferred stockholders (venture capital groups) aided and abetted the directors to submit the question to a jury.

After selling a subsidiary, the company no longer had employees participating in the multi-employer pension plan and sought to withdraw. The underfunded plan claimed that the company owed about $5 million. An arbitrator determined that the company did not have withdrawal liability. The district court agreed. The Seventh Circuit affirmed. The plan argued that the company had closed other plants, outsourcing work, so that the sale was not solely responsible for the company not continuing contributions. A company is not liable for withdrawal under 29 U.S.C. 1384 if withdrawal is "solely" because of a bona fide sale. The court stated that there was evidence to support the arbitrator's finding that the sale was not part of a plan by the company to withdraw in stages and that the focus must be the transaction at issue: a sale to an ongoing business that is willing and able to continue contributions.

Residents of Missouri contracted with a Texas franchisor to operate tax preparation franchises near St. Louis. The contract contained an arbitration clause and identified Texas as the forum for both arbitration and litigation. When the businesses failed, the franchisees sued the Texas company in Illinois. The district court dismissed. The Seventh Circuit affirmed. The court noted that the parties had not briefed Texas law, but that the Illinois Franchise Act, 815 ILCS 705/4, allows out-of-state arbitration agreements, despite disallowing forum selection; the Federal Arbitration Act, 9 U.S.C. 1, strongly favors agreements for arbitration. Even if the Texas company knowingly authorized a franchise in Illinois, the arbitration clause justified dismissal. The district court did not have jurisdiction to order arbitration outside the district, but the issue was not waived. The court rejected claims of fraudulent inducement and unconscionability.