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

Nation left his position as CEO of Spring Air in 2007 with a severance package of $1.2 million to be paid over 15 months provided he did not work for competitors through 2008. Spring Air paid Nation more than $836,000, but in August 2008 ceased making payments due to liquidity problems. Spring Air ultimately filed for bankruptcy. Nation sued defendant, Spring Air's majority shareholder and primary creditor, asserting tortious interference with contract: that defendant used its majority position on Spring Air's board of directors to induce the company to breach his severance agreement. The district court dismissed, finding that defendant was conditionally privileged based on its status as Spring Air's majority shareholder and that Nation had not presented sufficient evidence to overcome the privilege. The Seventh Circuit affirmed. Illinois law recognizes that a corporation's directors, officers, and shareholders are conditionally privileged to interfere with the corporation's contracts. The privilege is an aspect of the business-judgment rule. Nation failed to overcome the privilege with evidence that defendant induced breach for the specific purpose of injuring him or to further its own goals and that it acted against the best interests of the corporation.

In 1998 Ryerson sold subsidiaries to EMC for $29 million. The following year EMC sought rescission, claiming that Ryerson concealed that a subsidiary’s largest customer had declared that unless it slashed prices, the customer would stop buying from the subsidiary. Three years later, the parties settled, with Ryerson making a $8.5 million "price adjustment." Federal refused to indemnify Ryerson under an “Executive Protection Policy.” The policy covers loss for which the insured becomes legally obligated to pay on account of any claim for a wrongful act [defined to include a "misleading statement" or "omission"] allegedly committed by the insured. Federal denied that "loss: includes restitution paid by an insured, as distinct from damages. The Seventh Circuit affirmed summary judgment in favor of Federal, stating that reimbursement of disgorgement of the profits of fraud would “encourage fraud.” Having to surrender those profits was not a loss within the meaning of the policy. The court also rejected an argument that Federal's change of position on why it denied the claim violated the doctrine of "mend the hold." In Illinois that doctrine does not forbid the defendant to add a defense after being sued.

Penske provided transportation services for a newspaper, its only customer, 1999 to 2009, but lost the bid for the contract and informed the union that it would cease operations. The collective bargaining agreement expired two days after operations shut down. Penske and the union engaged in "effects bargaining." Penske agreed to give workers extended recall rights, preferential treatment should they apply for employment at other firms within the Penske group, pay for unused vacation time, severance pay of one week's wages, and assistance in preparing resumes and securing letters of recommendation. Employees filed claims they characterized as a "hybrid" breach of contract and Labor-Management Relations Act, 29 U.S.C. 185 suit. The Seventh Circuit agreed with the district court that the suit was "doomed" because the plaintiffs did not even contend that Penske failed to implement the collective bargaining agreement. The court also dismissed a claim that the union did not bargain hard enough.

In 1989 Dominguez was arrested and in 1990 he was convicted of home invasion and sexual assault. In 2002 he was exonerated by DNA; in 2005 he received a pardon. Under Illinois law, his claim for malicious prosecution accrued in 2002. Under federal law, constitutional claims (42 U.S.C. 1983) accrued in 1989 and 2002. Wrongful arrest claims accrue on the date of arrest, but wrongful conviction claims accrue when conviction is invalidated. The Seventh Circuit affirmed an award of about $9 million for malicious prosecution and concealment of exculpatory evidence. The city has been insured by different companies and each asserted that the policy for another year applied. None provided a defense. The district court held that the issuer of the "occurrence" policy in force at exoneration must defend and indemnify. The Seventh Circuit affirmed. The city's misconduct occurred in 1989 and 1990, but the policy does not define the "occurrence" as misconduct by a law-enforcement officer. It defines the occurrence as the tort under state or federal law, and, in both, the tort occurs witn its last element, exoneration. Until then, Dominguez could not establish "malicious prosecution" or "violation" of section 1983.

In 2009, fire severely damaged the insureds' home. They submitted a claim to under their homeowners’ policy the next day. The insurer began requesting documents, authorizations, and interviews and learned that the insureds had at least two businesses, held numerous personal and business accounts, and were involved in several lawsuits. A fire investigator concluded that the fire was intentionally set. The insurer requested additional documents: detailed phone records, bank histories, tax returns, and mortgage information and reminded the insureds that proof of loss was due by May 2. The insurer granted extensions; on the day of the final deadline the insureds delivered almost 1,000 pages of documents. Several months later, the insurer had not received most of the requested documents or an explanation why they could not be produced. After initially acknowledging their failure to produce the documents, the insureds attempted to impose a deadline for settlement of the $2.6 million claim. The district court entered summary judgment for the insurer in the insureds' breach of contract suit. The Seventh Circuit affirmed. The insureds failed to perform the specific "duties after loss" listed in the policy.

The LLC was organized in 1999 to own and operate 100 fast-food restaurants. Khan owned 40% of the common units. Remaining common units, and all preferred units, were owned by Sentinel. Plaintiffs, restaurant managers, claim that they accepted lower salaries because Khan told them that he would acquire full ownership and would reward top managers with equity. In 2005, Khan became the sole equity owner, but did not distribute common units to any managers. Plaintiffs calculated that the price paid for Sentinel's interest implied that the business was worth about $48 million; in 2005, 20 managers qualified for units, so each lost about $1.2 million. The district court held that plaintiffs had not adequately estimated damages. The Seventh Circuit reversed, stating that value is what people will pay. The judiciary should not reject actual transactions prices when they are available.

The brokerage entered into agreements with customers that set a fee for handling, postage, and insurance for mailing confirmation slips after each securities trade. Plaintiff filed claims of breach of contract and unjust enrichment, seeking class certification and recovery of fees charged since 1998. The brokerage removed to federal court under the Class Action Fairness Act, 28 U.S.C. 1332(d), or the Securities Litigation Uniform Standards Act 15 U.S.C. 78p(b) and (c) and 78bb(f), and obtained dismissal. The Seventh Circuit affirmed, first holding that SLUSA did not apply because any alleged misrepresentation was not material to decisions to buy or sell securities, but CAFA's general jurisdictional requirements were met. The agreement did not suggest that the fee represents actual costs, and it was not reasonable to read this into the agreement. Nor did the brokerage have an implied duty under New York law to charge a fee reasonably proportionate to actual costs where it notified customers in advance and they were free to decide whether to continue their accounts.

Plaintiffs brought a putative class action under the Employee Retirement Income Security Act, 29 U.S.C. 1001, to recover benefits under long-term disability benefit plans maintained by their former employers. The plans provide for reduction of benefits if the disabled employee also receives benefits under the Social Security Act, as both plaintiffs do. They dispute calculation of the reduction, claiming that the plans do not authorize inclusion in the offset of benefits paid to dependent children. Both plans require offsets for "loss of time disability" benefits. The district court dismissed. The Seventh Circuit affirmed, holding that children's Social Security disability benefits paid based on a parent's disability are "loss of time disability" benefits under the language of the plans.

The employer sought an early withdrawal from its obligation to make pension contributions to a multiemployer pension fund; it entered into a new collective bargaining agreement, six weeks before expiration of the existing agreement, that abrogated its obligation to make payments to the fund. The fund sued under the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1145. The district court entered summary judgment in favor of the fund. The Seventh Circuit affirmed, rejecting an argument that the agreement was ambiguous in providing that the employer could not “prospectively” change its obligation.

In 2009 the fire protection district adopted an ordinance requiring commercial buildings and multi-family residences to have fire alarms equipped with wireless radio technology to send alarm signals directly to the district's central monitoring board. The ordinance provided that the district would contract with one private alarm company to provide and service signaling equipment, displacing several private fire alarm companies that have competed for these customers. The alarm companies sued on claims under the U.S. Constitution, federal antitrust law, and state law. The district court granted summary judgment for the alarm companies on the basis of state law and enjoined the district from implementing the ordinance. The Seventh Circuit affirmed in part, holding that the district has statutory authority to require that commercial and multi-family buildings connect directly to its monitoring board through wireless radio technology. The district does not, however, have authority to displace the entire private market by requiring all customers to buy services and equipment from itself or just one private company.