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

Plaintiffs filed a class action suit against B&B and others, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962. The alleged scheme involved "Population Equivalents" (PEs), specified quantities of sewage that a house or other building was estimated to dump into the local sewage system. The complaint alleged that B&B had improperly taken control of the Wasco Sanitary District and used that control to divert to itself permit fees that should have gone to the district to finance an expansion of its sewage system. The district court dismissed the claim for want of RICO standing because plaintiffs could not demonstrate an injury to their business or property. On appeal, defendants challenged the district court's denial of their application for an award of attorneys' fees under Fed. R. Civ. P. 11(b)(1) and (2). The court concluded that plaintiffs' suit, while meritless, was not frivolous. Accordingly, the court affirmed the judgment of the district court. View "Fiala, et al. v. B&B Enterprises, et al." on Justia Law

Wells Fargo sued the Younans for breach of contract. The defendants moved for dismissal for lack of subject matter jurisdiction, lack of personal jurisdiction over Sherry Younan because of lack of minimum contacts in Illinois and insufficient service of process. The district court ruled that the opposing parties were not of diverse citizenship and that it lacked subject matter jurisdiction. Instead of amending, Wells Fargo moved, nine months after filing its original complaint, to be allowed to dismiss without prejudice. The defendants asked that dismissal be conditioned on Wells Fargo’s paying their legal expenses of $56,000. The judge dismissed, conditioned on Wells Fargo reimbursing defendants for $11,000 in legal expenses incurred in seeking dismissal. The Seventh Circuit affirmed, noting that the defendants did not justify their “extravagant‐seeming request, which included more than $9,000 for two briefs each of which was just half a page long and merely incorporated by reference another lawyer’s brief.” View "Wells Fargo Bank, NA v. Younan Props., Inc." on Justia Law

Re and Leach owned warehouses in Englewood, Florida. After leasing space in Leach’s warehouse, Daughtry told his agent that he did so because Leach stated that a sewer line essential to Re’s warehouse crossed Leach’s property without permission and lacked permits. The agent shared the information who Re, who hired assailants to beat Leach and threaten worse unless he broke the lease. Re was convicted under the Hobbs Act, 18 U.S.C. 1951, for using extortion to injure Leach’s business in interstate commerce. The Seventh Circuit affirmed. In a petition under 28 U.S.C. 2255, Re claimed that his lawyers rendered ineffective assistance: trial counsel by stealing from Re and appellate counsel by omitting an argument certain to prevail. The district court denied the petition. The Seventh Circuit affirmed, rejecting an argument that threatening someone without “obtaining” money, or value, in return, does not meet the Hobbs Act definition. A jury could find that Re’s goal in having Leach beaten was to obtain Daughtry as a tenant to get rental payments. A post-trial crime by a lawyer against his client does not spoil the trial as a matter of law; prejudice must be shown. Re could not establish prejudice. The lawyer who embezzled his funds played only a peripheral role in the trial. View "Re v. United States" on Justia Law

Attorney Stilp represented Miller in claims concerning the construction of Miller’s house by contractor Herman. The district court dismissed. Stilp recommended that Miller terminate the action based on state law. Miller told Stilp that needed time to consider whether to refile., Herman filed a Chapter 7 bankruptcy petition. Herman’s bankruptcy attorney, Jones, prepared schedules listing the addresses of all creditors. Miller was listed as a creditor on the bankruptcy schedules and creditor matrix, but his address was listed as “c/o Thomas Stilp, Attorney” at Stilp’s office address. Notice of the bankruptcy was delivered to Stilp’s office but was routed to another attorney. Neither Stilp nor Miller was informed of the notice. Miller subsequently informed Stilp that he wanted to refile his complaint against Herman. Stilp then discovered that Herman had filed for bankruptcy protection. Miller did not take immediate action and, about a month later, the bankruptcy court entered a discharge order. About 13 months after he learned of Herman’s bankruptcy petition, Miller moved to reopen the case (11 U.S.C. 727(a)(4)(A)). The bankruptcy court denied the motion. The district court and Seventh Circuit affirmed, finding that Miller had been properly served when notice was delivered to Stilp’s firm.View "Miller v. Herman" on Justia Law

Steidl and Whitlock were convicted of 1987 murders, largely based on testimony by two supposed eyewitnesses. Long after the convictions, an investigation revealed that much of the testimony was perjured and that exculpatory evidence had been withheld. The revelations led to the release of the men and dismissal of all charges. Steidl had spent almost 17 years in prison; Whitlock had spent close to 21 years. They sued. By 2013, both had settled with all defendants. Because the defendants were public officials and public entities, disputes arose over responsibility for defense costs. National Casualty sought a declaratory judgment that it was not liable for the defense of former State’s Attorney, McFatridge, or Edgar County, agreeing to pay their costs under a reservation of rights until the issue was resolved. The Seventh Circuit ruled in favor of National Casualty. In another case McFatridge sought a state court order that the Illinois Attorney General approve his reasonable expenses and fees; the Illinois Supreme Court rejected the claim. In a third case, National Casualty sought a declaratory judgment that another insurer was liable for costs it had advanced. The Seventh Circuit affirmed that the other company is liable. It would be inequitable for that company to benefit from National’s attempt to do the right thing, especially since it did not do the right thing and contribute to the defense costs under a reservation of rights. View "Nat'l Cas. Co. v. White Mountains Reinsurance Co." on Justia Law

Brindley and Thompson entered appearances as counsel for one of two defendants charged with drug offenses. A joint trial was scheduled. Both moved for continuance; the court set a hearing and ordered defendants counsel to be present. Thompson was present; Brindley was not. At a subsequent status conference, the court scheduled a jury trial and set a deadline for pretrial motions. Britton did not file any motions. On November 6, the court set a status conference for November 26 to discuss pretrial motions and ordered Brindley “to be present in person … not through other counsel.” Defendant appeared, but Brindley and Thompson did not and did not contact the court. The court set a show cause hearing; Brindley moved for continuance, claiming that he had not seen the order and had obligations in another trial. He apologized. The district court denied the motion and ordered Brindley to appear on November 30. Brindley appeared, but the court rejected his explanations as lies, held Brindley in contempt under Fed. R. Crim. P. 42(b), and remanded him to custody for two days. The Seventh Circuit vacated. The court erred in using Fed. R. Crim. P. 42(b)ʹs summary contempt procedures, which apply only when there is a compelling reason for an immediate remedy, contempt occurred in the judge’s presence, and the judge saw or heard the contemptuous conduct. The court noted that if the district court chooses, on remand, to proceed under 18 U.S.C. 401, a different judge will preside. View "United States v. Britton" on Justia Law

After the mutual funds, known as the Lancelot or Colossus group, folded in 2008, the trustee in bankruptcy filed independent suits or adversary actions seeking to recover from solvent third parties, including the Funds’ auditor, law firm, and some of the Funds’ investors, which the Trustee believes received preferential transfers or fraudulent conveyances. The Funds had invested in notes issued by Thousand Lakes, which was actually a Ponzi scheme, paying old investors with newly raised money. In these proceedings the trustee contends that investors who redeemed shares before the bankruptcy received preferential transfers, 11 U.S.C. 547, or fraudulent conveyances, 11 U.S.C. 548(a)(1)(B) and raised a claim under the Illinois fraudulent-conveyance statute, using the avoiding power of 11 U.S.C. 544. The bankruptcy court dismissed the claims against the law firm that prepared circulars for the Firms. The Seventh Circuit affirmed. No Illinois court has held that failure to report a corporate manager’s acts to the board of directors exposes a law firm to malpractice liability. The complaint does not plausibly allege that alerting the directors would have made a difference. View "Peterson v. Winston & Strawn, LLP" on Justia Law

The Tax Court upheld the IRS’ disallowance of losses claimed by various LLCs that had been created by a tax attorney as tax shelters and a 40 percent penalty for a “gross valuation misstatement,” 26 U.S.C. 6662(a). An LLC is generally treated as a partnership for tax purposes, so that its income and losses are deemed to flow through to the owners and are taxed to them rather than to the business. How much income or loss should be recognized on the owners’ tax returns is now determined by an audit of the business. The LLCs at issue were formed to reduce taxes by transferring the losses of a bankrupt Brazilian electronics retailer to create what is called a distressed asset/debt (DAD) tax shelter, based on a tax loophole closed by the American Jobs Creation Act of 2004, 26 U.S.C. 704(c) the year after creation of the tax shelters at issue. The Seventh Circuit affirmed, characterizing the LLCs as entities without economic substance, not recognized for federal tax law purposes. View "Superior Trading, LLC v. Comm'r of Internal Revenue" on Justia Law

Attorney Turza sent out a fax, titled the “Daily Plan-It,” containing business advice. The fax was sent to CPAs who were not Turza’s clients, about every two weeks. The Telephone Consumer Protection Act of 1991, 47 U.S.C. 227, prohibits any person from sending unsolicited fax advertisements; even permitted fax ads must tell the recipient how to stop receiving future messages. Turza’s faxes did not contain opt-out information. The district court certified a class of the faxes’ recipients and ordered Turza to pay $500 in statutory damages for each of 8,430 faxes. ($4,215,000): $7,500 to the representative plaintiff ; $1,430,055.90 to class counsel for attorneys’ fees and expenses; and any residue, after payments to class members, to the Legal Assistance Foundation of Metropolitan Chicago “as a cy pres award.” The Seventh Circuit affirmed on the merits, rejecting an argument that the faxes were not ads, but vacated the remedial order. View "Holtzman v. Turza" on Justia Law

A class of Motorola investors claimed that, during 2006, the firm made false statements to disguise its inability to deliver a competitive mobile phone that could employ 3G protocols. When the problem became public, the price of Motorola’s stock declined. The parties settled for $200 million. None of the class members contends that the amount is inadequate. Two objected to approval of counsel’s proposal that it receive 27.5 percent of the fund. One objector protested almost a month after the deadline and failed to file a claim to his share of the recovery. The Seventh Circuit dismissed his appeal, stating that he lacks any interest in the amount of fees, since he would not receive a penny from the fund even if counsel’s share were reduced to zero. The other objector claimed that fee schedules should be set at the outset, preferably by an auction in which law firms compete to represent the class. Noting the problems inherent in such a system, the court held that the district judge did not abuse her discretion in approving the award. View "Liles v. Motorola Solutions, Inc." on Justia Law