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

JHM rents commercial laundry machines to Chicago-area apartment buildings. Firestone made four loans to JHM, totaling $254,114.99. JHM defaulted on each. Firestone sued. JHM filed an answer, asserting a counterclaim of promissory estoppel, alleging that after Firestone’s first two loans to JHM, Firestone vice president McAllister had represented that his company “wanted to expand [its] investment in the laundry business,” and that it “would create a $500,000 line of credit” to fund equipment purchases, which “induced JHM into purchasing equipment” that it would not otherwise have purchased and that it was unable to pay for. As a result, JHM’s equipment supplier (Maytag) refused to sell it laundry equipment, resulting in substantial losses. JMH raised affirmative defenses, including promissory estoppel and prior breach of contract. Defense counsel withdrew from the case. JMH did not obtain substitute counsel, so the court granted Firestone default judgment, on grounds that corporations are required to have legal counsel under Illinois law. The court later dismissed the counterclaims as facially implausible and entered summary judgment on a breach of guaranty claim. The Seventh Circuit vacated; the plausibiity standard does not allow a court to question or otherwise disregard nonconclusory factual allegations simply because they seem unlikely. View "Firestone Fin. Corp. v. Meyer" on Justia Law

The IRS assessed deficiencies against Williams in connection with his income tax for 1996-2005, totaling, with interest and penalties, about $1.3 million. He did not pay. The IRS filed tax liens in Clark County, Indiana, where Williams and his wife Leslie jointly own land. The state and county also filed liens. The district court entered an order that specifies how much Williams owes to each of the three taxing bodies, orders the property to be sold and the net receipts applied to these debts, and details how the money will be divided among the United States, the state, the county, and Leslie. The order states that it is the court’s final decision; the Williamses appealed. The mortgage lender argued that foreclosure governed by Illinois law is not final, and not appealable, because the amount of a deficiency judgment depends on the reasonableness of the sale price, and the validity of the sale itself is contestable to determine whether the outcome is equitable. Illinois provides debtors with multiple opportunities to redeem before a transfer takes effect. The Seventh Circuit affirmed. The foreclosure sale is governed by 26 U.S.C. 7403(c), which does not provide for deficiency judgments and does not give the taxpayer a right of redemption. View "United States v. Williams" on Justia Law

FRCP 4(c)(3) requires a court to order that service be made by a U.S. marshal or deputy marshal or by a person specially appointed if the plaintiff is authorized to proceed in forma pauperis under 28 U.S.C. 1915. Plaintiff, a federal inmate, sued former warden Werlinger, for violations of his constitutional rights. The judge allowed him to proceed pro se and, in June 2014, directed the Marshals Service to serve Werlinger. The Marshals replied within days that Werlinger had retired and left no forwarding address. The court directed the Marshals to make another attempt by contacting the Federal Bureau of Prisons or conducting an Internet search of public records, stating that “reasonable efforts do not require the marshal to be a private investigator for civil litigants or to use software available only to law enforcement officers." Two days later, the Marshals replied: Was not able to locate using internet database searches. The Seventh Circuit reversed the dismissal as premature. The “court should not have accepted the responses…. Not that the Service can be expected to do the impossible. If Werlinger changed his name to Siddhārtha Gautama and is now a monk of a Buddhist temple in Tibet, the Marshals Service probably couldn’t find him by efforts proportionate to the importance of finding … plaintiff would be out of luck … the statute of limitations shall be tolled … while the Marshals Service redoubles its efforts to FIND WERLINGER!” View "Williams v. Werlinger" on Justia Law

Timmermann’s sued its former employee, Pace, for conversion, breach of fiduciary duty, fraud, and unjust enrichment, claiming that Pace had stolen merchandise and money from the company. Pace filed her answer and a counterclaim, then filed a separate action against Timmermann’s and individual employees, alleging that they had conspired to facilitate Pace’s false arrest and that, as a result, she had suffered severe and extreme emotional distress. Pace later moved to consolidate the actions. The court granted the motion with respect to discovery, but denied the motion with respect to trial and instructed Pace that she should request consolidation for trial after the close of discovery. During discovery, the court dismissed Pace’s action, concluding that her claims were actually compulsory counterclaims that should have been filed with her answer to the company’s complaint. The Seventh Circuit reversed in part, holding that Pace’s claims against parties other than Timmermann’s were not compulsory counterclaims because FRCP 13 and 20, in combination, do not compel a litigant to join additional parties to bring what would otherwise be a compulsory counterclaim. Because Pace’s claim for abuse of process against Timmermann’s arose before the filing of her counterclaim, it was a mandatory counterclaim. View "Pace v. Timmermann's Ranch & Saddle Shop, Inc." on Justia Law

The plaintiff alleged consumer fraud by the seller of a dietary supplement, and the district court certified a plaintiff class of individuals “who purchased Instaflex within the applicable statute of limitations of the respective Class States for personal use until the date notice is disseminated,” under Rule 23(a) and (b)(3). The court rejected defendant’s argument that Rule 23(b)(3) implies a heightened ascertainability requirement. The Seventh Circuit affirmed, noting an implicit requirement under Rule 23 that a class must be defined clearly and that membership be defined by objective criteria rather than by, for example, a class member’s state of mind. In addressing this requirement, courts have sometimes used the term “ascertainability.” Class definitions fail this requirement when they were too vague or subjective, or when class membership was defined in terms of success on the merits (fail-safe classes). This class satisfied “ascertainability” View "Mullins v. Direct Digital, LLC" on Justia Law

In 2003, the SEC filed a civil suit against Custable, charging fraud involving “penny stocks” that yielded him at least $4 million. Criminal proceedings resulted in a long prison sentence for Custable. In 2010 he consented to entry of a judgment that ordered him to pay a $120,000 penalty plus $6.4 million in disgorgement of profits, 15 U.S.C. 78u(d). The SEC may either to remit the penalty money to the Treasury or to place it in the same fund as the disgorged profits, 15 U.S.C. 7246. Deciding that locating the defrauded victims would not be feasible, the Commission asked the court to allow it to pay to the Treasury all the disgorged profits that it had recovered. Hare, a purported victim of another Custable fraud and not a party, claimed to have an interest in the fund and asked the court to allow him to respond to any motion to disburse. The judge rejected Hare’s argument and granted the SEC’s motion to disburse the entire fund to the Treasury. The Seventh Circuit dismissed an appeal. Hare failed to establish that he is within an exception to the rule that forbids a nonparty to appeal; the grounds that he advanced for relief were frivolous View "Sec. & Exch. Comm'n v. Custable" on Justia Law

Valdes was traveling by train. During a layover, DEA agents approached Valdes because he fit their profile of a drug courier, searched Valdes’s luggage, and found bundles of cash totaling $239,400. Each bundle was covered with several layers of packaging. Valdes stated that the money was his and that he was traveling to purchase computers for his computer recycling business. No drugs were found in his luggage. A drug-sniffing dog alerted to the bag containing the currency. The agents did not arrest Valdes. They told him that he was free to go but seized the currency. The government filed a civil forfeiture complaint under 21 U.S.C. 881(a)(6) alleging that the currency was furnished or intended to be furnished for a controlled substance. Valdes filed a claim, asserting an ownership. His wife also filed a claim, based on a community property and innocent ownership interest. After they filed their claims, but before they answered the complaint, the government served special interrogatories. The government moved to strike the claims and answers, arguing that the claimants failed to respond to interrogatories, so that they lacked standing. The district court agreed. The Sixth Circuit reversed. By blending standing and the merits, the court nullified Civil Asset Forfeiture Reform Act of 2000 protections that put the burden on the government to prove by a preponderance of evidence that property is forfeitable, 18 U.S.C. 983(c). View "United States v. Funds in the Amount of $239,400" on Justia Law

Stars is a nude dancing establishment in Neenah, Wisconsin. When Stars opened in 2006, the County had a zoning ordinance governing Adult Entertainment Overlay Districts. Stars’s application was stalled because, all parties agree, the 2006 ordinance violated the First Amendment. Its owner sued in federal court, arguing that anything is legal that is not forbidden, and Staars was banned only by an unconstitutional ordinance: therefore, Stars was permitted in 2006 and is now a legal nonconforming use that cannot be barred by a later ordinance. The court granted summary judgment to Winnebago County, reasoning that it was possible to use the law’s severance clause to strike its unconstitutional provisions. The Seventh Circuit reversed in part, agreeing that the permissive use scheme laid out in the ordinance was unconstitutional, but reasoning that, after the constitutional problems are dealt with, the remaining questions concern state law. Their resolution depends on facts that were not developed, and on the possible existence of a power not only to sever problematic language but to revise it—a power federal courts do not have. The district court should have declined to exercise supplemental jurisdiction over the state-law claims and should have dismissed them without prejudice so that the parties may pursue them in state court. View "Green Valley Inv., LLC v. Winnebago Cnty." on Justia Law

In 2013 the Seventh Circuit held unconstitutional a provision of the Indiana Unclaimed Property Act, Ind. Code 32-34-1-1 that stated that “property” is “presumed abandoned if the owner or apparent owner has not communicated in writing with the holder concerning the property or has not otherwise given an indication of interest in the property” within a specified period varying according to the type of property. By filing a valid claim, the owner could reclaim the property up to 25 years after it was delivered to the attorney general, but was entitled only to principal and not to any interest. Several months later, the state amended the Act to provide for payment of interest. The district court dismissed the remand as moot and denied plaintiff attorneys’ fees. The Seventh Circuit reversed, opining that the judge was annoyed at the plaintiff because on remand she asked permission to file an amended complaint to convert the suit to a class action, based on intimations that the state would compensate only the plaintiff. She withdrew that request when the state amended the Act. The state’s concession did not deprive the plaintiff of her status as the prevailing party. The court also opined that the amount sought—$258,462.50 for 375.75 hours—is excessive. View "Cerajeski v. Zoeller" on Justia Law

McCormick bought a single-premium variable life-insurance policy that permits borrowing against its cash value. Loans are secured by moving an equivalent amount from sub-accounts that the policyholder can invest to a “general account” that draws 4% interest. The policyholder owes 4.7% on any borrowed sums, so the net is 0.7% per annum, plus foregoing the opportunity to exercise discretion about how to invest the borrowed sum. If the owner does not pay the annual interest, “it will be added to the principal of the loan and will bear interest.” McCormick borrowed against cash value and did not pay interest. Independence, the insurer, added the unpaid interest “to the principal of the loan” (which caused additional sums to be moved from investments into the general account) and charged interest on the higher indebtedness. Compound interest has increased the debt by $44,000, which, if not repaid, will reduce the death benefit. McCormick sought a declaration that the $44,000 is not owed, because, when unpaid interest was added to principal and moved to the general account, it was “paid” automatically. The court entered judgment for Independence. The Seventh Circuit vacated with instructions to dismiss. Removal rested on diversity of citizenship, and $75,000 is the minimum amount in controversy for that jurisdiction. View "McCormick v. Independence Life & Annuity Co." on Justia Law