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

VLM, a Montreal-based supplier, sold frozen potatoes to IT in Illinois. After nine successful transactions, IT encountered financial difficulty and failed to pay for the next nine shipments. Invoices sent after delivery included a provision purporting to make IT liable for collection-related attorney’s fees if it breached the contracts. VLM sued; the deadline for an answer passed. The court entered a default. On defendants' motion, the court vacated the default as to IT’s president only. All three defendants then filed answers, contesting liability for attorney’s fees. The judge applied the Illinois Uniform Commercial Code and found that the fee provision had been incorporated into the contract. The Seventh Circuit reversed, holding that the U.N. Convention on Contracts for the International Sale of Goods applied. On remand, the judge applied the Convention and held that the fee provision was not part of the contracts and that IT could benefit from this ruling, despite the prior entry of default. The Seventh Circuit affirmed. IT never expressly assented to the attorney’s fees provision in VLM’s trailing invoices, so under the Convention that term did not become a part of the contracts. VLM waived its right to rely on the default by failing to raise the issue until its reply brief on remand. View "VLM Food Trading Int'l, Inc. v. Ill. Trading Co." on Justia Law

FirstMerit Bank sued CFE Group in federal court to enforce a promissory note and guaranties. The district court dismissed without prejudice, with leave to amend. Rather than amend, FirstMerit filed a notice of voluntary dismissal under Federal Rule of Civil Procedure 41(a)(1)(A)(i). FirstMerit then filed a new complaint in an Illinois state court asserting the same claims. CFE moved to dismiss the new suit, arguing that the earlier federal dismissal meant that FirstMerit’s claims were barred by claim preclusion (res judicata). The state trial court denied the motion. CFE filed a new federal action, seeking to enjoin the state court under the relitigation exception to the federal Anti‐Injunction Act, 28 U.S.C. 2283. The district court refused, ruling that the dismissal of the first federal case was not a judgment on the merits and, therefore, did not preclude the state action. The Seventh Circuit affirmed, noting that CFE’s request for an injunction was also barred by the Full Faith and Credit Act, 28 U.S.C. 1738, and finding the appeal frivolous, so that sanctions on CFE are appropriate. View "CFE Group, LLC v. FirstMerit Bank, N.A." on Justia Law

Lawyer Spicer represented plaintiff Egan in a case that alleged sex discrimination and the creation of a hostile work environment. The complaint included allegations that Egan, at her deposition, emphatically denied. Spicer conceded that the allegations in the paragraph were false and claimed “proofreading error.” The case was ultimately dismissed for lack of personal jurisdiction. The district judge imposed a $5,000 sanction on Spicer for “bad faith” misconduct/ The Seventh Circuit affirmed, calling Spicer’s excuses “pathetic” and noting that it took six months for Spicer to correct the complaint. View "Egan v. Pineda" on Justia Law

The law firm represented Goesel, a minor, and his parents in a personal-injury suit that settled before trial. The law firm needed judicial approval to finalize the settlement. The contingent-fee agreement entitled the firm to one-third of the gross settlement; all litigation expenses would be covered by the Goesels’ share. The court refused to approve the settlement unless litigation expenses were deducted off the top and one-third of the net settlement was allocated to the firm and rejected the firm’s attempt to count the cost of computerized legal research as a separately compensable expense rather than rolling it into the fee recovery. The Goesels declined to participate in an appeal, so the court appointed an amicus to argue in support of the decision. The Seventh Circuit reversed. Though the court enjoys substantial discretion to safeguard the interests of minors in the settlement of litigation, this discretion is not boundless. Here, the judge criticized aspects of the firm’s contingent-fee agreement that have received the express blessing of Illinois courts. Once these improper reasons are stripped away, the only rationale that remains—that “fairness and right reason” require that the Goesels receive 51% of the gross settlement amount rather than 42%—is insufficient to justify discarding a reasonable contingent-fee agreement. View "Williams, Bax & Saltzman, P.C. v. Boley Int'l (H.K.) Ltd" on Justia Law

Investors in Central Sleep filed suit against the company, Dachman, its promoter, and others, claiming fraud, RICO violations, conversion, fraudulent conveyance, civil conspiracy, and securities fraud. Dachman was also convicted for his fraudulent conduct. He spent the funds he stole from investors on a tattoo parlor, vacations and cruises, a new Land Rover, rare booksm and to fund personal stock trading and gambling. Goodman represented the defendants. A judge ordered Central Sleep into receivership and issued a stay against “all civil legal proceedings” involving the defendants. The receivership closed; victims received pennies on the dollar. Goodman obtained a judgment for unpaid legal fees and submitted a claim, but also filed a lien against the proceeds of the Dachmans' state court medical-malpractice lawsuit. Neither Goodman nor the Dachmans informed the receiver or the judge of those proceedings. The receiver learned of the malpractice suit and recovered the settlement proceeds. When the receiver proposed a distribution plan, Goodman argued that his lien entitled him to be paid in full from the malpractice suit proceeds, rather than pro rata from the receivership estate like other creditors. The judge offered Goodman the opportunity to post a bond to delay distribution, pending appeal. Goodman did not post a bond. The judge approved the plan and the funds were distributed. The Seventh Circuit affirmed and granted the receiver’s motion for sanctions against Goodman. View "Duff v. Central Sleep Diagnostics, LLC" on Justia Law

In 2010, Southwest Airlines stopped honoring certain in-flight drink vouchers issued to customers who had bought “Business Select” fares. Customers filed suit, seeking to represent a class of similarly situated plaintiffs. The parties reached a settlement to provide replacement drink vouchers to all class members, and injunctive relief constraining how Southwest could issue future vouchers. The parties negotiated an agreement on fees for class counsel. The court certified the class and approved the settlement’s class relief components, but awarded counsel a smaller fee than requested. Two class members objected, arguing that the settlement was unfair to the class because it was too generous to class counsel. The Seventh Circuit affirmed. The “coupon settlement” provisions of the Class Action Fairness Act, 28 U.S.C. 1712, allowed the court to award attorney fees based on the lodestar method rather than the value of the redeemed coupons. While the fee aspects of the settlement include troublesome features, the settlement provides class members essentially complete relief. The financial and professional relationship between lead class counsel and one lead plaintiff created a potential conflict of interest that should have been disclosed, but another lead plaintiff had no conflict and the class received essentially complete relief, so there was no basis for decertification or rejecting the settlement. The court instead removed that plaintiff’s $15,000 incentive award and reduced the lawyer’s fee. View "Markow v. Southwest Airlines Co." 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

Taylor’s brother died in an accident. Caiarelli, the decedent’s ex-spouse and guardian of their minor child, obtained a state court declaration that the child was entitled to assets distributed to Taylor ($1.4 million). The estate assigned the judgment to Caiarelli. Taylor sought a probate court declaration that the assignment was void. Before resolution, Taylor filed for Chapter 11 bankruptcy, triggering the automatic stay. Caiarelli initiated an adversary proceeding, objecting to discharge of the judgment. The bankruptcy court dismissed, finding that Caiarelli failed to establish standing. The judgment was discharged, and Taylor’s creditors enjoined from collecting, 11 U.S.C. 524(a)(2). Caiarelli returned to probate court, which ratified the assignment. Taylor claimed that Caiarelli and her attorneys violated the discharge and plan injunctions. The bankruptcy court entered a civil contempt order and issued a damages order and judgment for $165,662.36 in attorney’s fees. While appeal was pending, Taylor notified the district court that he reached a settlement with the legal malpractice insurance carrier for Caarelli’s attorneys. The attorneys denied that a full settlement had been reached. The bankruptcy court indcated that vacatur would be approved if the parties returned to the court, so the district court denied Taylor’s motion to dismiss but reversed the contempt order, damages order, and judgment, finding no violation of the statutory discharge or plan injunctions. The Seventh Circuit affirmed, finding that the appeal was not moot. View "Taylor v. Caiarelli" on Justia Law

Bell established mutual funds, raised $2.5 billion, and invested in vehicles managed by Petters, who said that he was financing Costco’s electronics inventory. Instead he was running a Ponzi scheme, which collapsed in 2008. The scheme involved a claim that money lent to Petters entities was secured by Costco’s inventory and that repayment was ensured by a “lockbox” arrangement under which Costco would make payments into accounts that the Funds (not Petters) controlled. Petters insisted that the Funds not contact Costco, to avoid upsetting his favorable business relations. Bell and Petters went to prison for fraud. The Funds’ trustee in bankruptcy filed multiple suits. The district court dismissed a claim of legal malpractice. The Seventh Circuit reversed. Even if Bell was determined to do business with Petters, the Fund’s lawyers ould have explained how to structure the transactions in a less risky way, and if Petters refused to cooperate then Bell might have reconsidered lending the Funds’ money. The Trustee alleges that the firm did not offer any advice about how relative risks correspond to different legal devices, and its complaint states a legally recognized claim. Whether the law firm has a defense, and whether any neglect on its part caused injury, are subjects for the district court. View "Peterson v. Katten Muchin Rosenman LLP" on Justia Law

Choice Hotels sued SBQI, its managers, and investors, for breach of a franchise agreement. The defendants did not answer the complaint. The court entered a default. One defendant, Chawla, an Illinois attorney, had represented the others. Other defendants asked Chawla to find a new attorney. They claimed that they had been unaware that their signatures were on the franchise agreement and that the signatures are forgeries. Johnson agreed to try to vacate the default, negotiate a settlement, and defend against the demand for damages. Johnson filed an appearance and took some steps, but did not answer the complaint or move to vacate the default, engage in discovery concerning damages, or reply to a summary judgment motion on damages. In emails, Johnson insisted that he was trying to settle the litigation. He did not return phone calls. The court set damages at $430,286.75 and entered final judgment. A new attorney moved to set aside the judgment more than a year after its entry, under Fed. R. Civ. P. 60(b)(6), which covers “any other reason that justifies relief” and requires “extraordinary circumstances.” The Seventh Circuit affirmed. The defendants must bear the consequences of their inaction. They were able to monitor the proceedings, but did not follow through. View "Choice Hotels Int'l Inc. v. Grover" on Justia Law