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

Insurance executive Menzies sold over $64 million in his company’s stock but did not report any capital gains on his 2006 federal income tax return. He alleges that his underpayment of capital gains taxes (and related penalties and interest imposed by the IRS) was because of a fraudulent tax shelter peddled to him and others by a lawyer, law firm, and financial services firms. Menzies brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Illinois law. The district court dismissed all claims. The Seventh Circuit affirmed in part. Menzies’s RICO claim falls short on the statute’s pattern-of-racketeering element. Menzies failed to plead not only the particulars of how the defendants marketed the same or a similar tax shelter to other taxpayers, but also facts to support a finding that the alleged racketeering activity would continue. A fraudulent tax shelter scheme can violate RICO; the shortcoming here is one of pleading and it occurred after the district court authorized discovery to allow Menzies to develop his claims. Menzies’s Illinois state law claims were untimely as to the lawyer and law firm defendants. The claims against the remaining financial services defendants can proceed. View "Menzies v. Seyfarth Shaw LLP" on Justia Law

In a previous appeal, the Seventh Circuit held that the confirmation of a Chapter 13 payment plan causes the debtor’s assets, including automobiles, to revert to the debtor’s personal ownership unless the judge has made a debtor-specific finding under 11 U.S.C.1327(b). After bankruptcy judges confirmed their Chapter 13 payment plans, the debtors used their cars in ways that led to fines for running red lights, illegal parking, and similar offenses. They refused to pay, observing that the confirmed plans do not require them to pay fines (as opposed to other expenses). Chicago argued that the fines were administrative expenses of the estates in bankruptcy, as long as the vehicles remain assets of the estates, and entitled to priority payment, 11 U.S.C. 507(a)(2). On rehearing, the Seventh Circuit ruled in favor of the city, holding that automotive fines incurred by estates during confirmed Chapter 13 payment plans should be treated as administrative expenses that must be paid promptly and in full. The question is whether operating a vehicle is necessary to earn the money needed to perform the Chapter 13 plan. The debtors insisted that cars are essential. View "City of Chicago v. Marshall" on Justia Law

Imperial fraudulently purchased finished biodiesel and resold it while claiming government incentives and tax credits for producing biodiesel from raw feedstock. Imperial’s CEO (Wilson) hired Williky to artificially inflate Imperial’s stock by “wash and match trades” and “scalping” emails. In the 1990s, Williky had engaged in “wash and match trades” for another company led by Wilson. Williky acquired millions of shares of Imperial stock but failed to report his ownership levels when his shares surpassed five percent. By mid-2011, Williky knew Imperial misrepresented the source of its biodiesel to investors and, by November, knew the extent of Imperial’s fraud. Williky sold all of his Imperial shares and avoided a loss of $798,217. The SEC sued, seeking to permanently enjoin Williky from violating federal securities law and from acting as an officer or director of a public company; to disgorge his financial gains; and to impose a civil penalty for insider trading. Williky entered into a bifurcated settlement with the SEC, conceding his involvement in the fraudulent scheme and agreeing that the court would determine the financial remedies. The SEC requested the statutory maximum civil penalty of $2,394,651 for insider trading, calculated as three times Williky’s avoided losses. Williky argued that the SEC’s proposed judgment ignored his cooperation with governmental agencies. The district court entered a judgment of $1,596,434, equal to two times the avoided losses. The Seventh Circuit affirmed. The district court adequately assessed the value of Williky’s cooperation. View "Securities & Exchange Commission v. Williky" on Justia Law

A storm caused minor hail damage at the Winding Ridge condominium complex located in Indiana, which was not discovered until almost a year later when a contractor inspected the property to estimate the cost of roof replacement. Winding Ridge submitted an insurance claim to State Farm. The parties inspected the property and exchanged estimates but could not reach an agreement. Winding Ridge demanded an appraisal under the insurance policy. State Farm complied. After exchanging competing appraisals, the umpire upon whom both sides agreed issued an award, which became binding. Winding Ridge filed suit alleging breach of contract, bad faith, and promissory estoppel. The Seventh Circuit held that the appraisal clause is unambiguous and enforceable; there is no evidence that State Farm breached the policy or acted in bad faith when resolving the claim. Winding Ridge’s own appraiser found no hail damage to the roofing shingles on 20 buildings. The fact that Winding Ridge independently replaced the shingles on all 33 buildings for $1.5 million while its claim was pending does not obligate State Farm under the policy or mean State Farm breached the policy. There is no evidence that State Farm delayed payment, deceived Winding Ridge, or exercised an unfair advantage to pressure Winding Ridge to settle. View "Villas at Winding Ridge v. State Farm Fire and Casualty Co." on Justia Law

Shoffner was convicted of unlawful possession of a firearm. The Seventh Circuit vacated his below-Guidelines sentence of 84 months’ imprisonment because the district court had miscalculated the base offense level. The district court had not specified whether its imposition of a six-level increase for punching the arresting officer, U.S.S.G. 3A1.2(c)(1), was based on a belief that it was required to find, as a matter of law, that the punch created a substantial risk of serious injury or whether the court had found, as a factual matter, that the punch created a serious risk of injury. On remand, the district court, a different judge presiding, conducted a sentencing hearing. Even though the Seventh Circuit decision had decreased his applicable advisory guidelines range, Shoffner received the same sentence. The Seventh Circuit again vacated and remanded. The district court erred procedurally by not explaining why it believed that the imposed sentence was appropriate and by failing to engage with his arguments in mitigation. View "United Statesx v. Shoffner" on Justia Law

LHO's Chicago hotel underwent a branding change in February 2014 when the establishment became “Hotel Chicago,” a signature Marriott venue. Around May 2016, Perillo and his associated entities opened their own “Hotel Chicago” three miles from LHO’s site. LHO sued for trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. 1125(a), and for trademark infringement and deceptive trade practices under Illinois law. After more than a year, LHO moved to voluntarily dismiss its claims, with prejudice. Defendants made a post‐judgment request for attorney fees, 15 U.S.C. 1117(a), for the prevailing party in “exceptional cases.” The parties identified two distinct standards for exceptionality: the Seventh Circuit’s standard, that a case is exceptional under section 1117(a) if the decision to bring the claim constitutes an “abuse of process” and the more relaxed totality‐of‐the‐circumstances approach under the Patent Act that the Supreme Court announced in Octane Fitness (2014). Other circuits have extended Octane to the Lanham Act. The district judge acknowledged Octane but adhered to the “abuse‐of‐process” standard and declined to award fees. The Seventh Circuit reversed and remanded, holding that Octane’s “exceptional case” standard controls. The court noted the legislative history, the Patent Act’s identical language, and the Supreme Court’s use of trademark law in Oc‐ tane View "LHO Chicago River, L.L.C. v. Perillo" on Justia Law

Heredia received four collection letters from CMS, a collections firm, and claims that the language in this correspondence violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692(e). The Seventh Circuit reversed the dismissal of the case, finding that Heredia has plausibly alleged that the dunning letter violated the FDCPA. The letters, which proposed a payment plan, stated: “Discover may file a 1099C form” and that “[s]ettling a debt for less than the balance owed may have tax consequences.” Language in a dunning letter violates section 1692e if the creditor used false, deceptive, or misleading representation or means in connection with the collection of debt. Under section 1692f, a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Although it is not technically illegal or impossible for Discover to file a 1099C form with the IRS if the amount is under $600, “a collection letter can be literally true” and still misleading. The defendants do not dispute that Discover would never file a 1099C form unless required to do so by law (forgiving $600 or more of principal). In the case of the Heredia letter, Discover would never file a 1099C form because in no circumstances would Discover be forgiving at least $600 in principal. View "Heredia v. Capital Management Services, L.P." on Justia Law

Planned Parenthood sued state officials in their official capacities, seeking to enjoin enforcement of Wisconsin abortion regulations. The Attorney General, as counsel for all defendants, answered the complaint, denying that the regulations were unconstitutional. The Wisconsin Legislature moved to intervene, both of right and with court permission, hoping to dismiss the complaint for failure to state a claim. A recently-enacted state statute allows the legislature to intervene “as a matter of right” if a party challenges the constitutionality of a statute. It also asserted an interest based on Supreme Court precedent holding that legislators had standing to challenge actions that nullified the “effectiveness of their votes.” The district court denied the motion, finding that the Legislature lacked an interest that was unique to it; that its interest in the effectiveness of its votes would not be impaired even if the regulations were declared unconstitutional; and that the Attorney General had the duty to defend the statute and was presumed to be an adequate representative. The court expressed concerns about politicizing the case. The Seventh Circuit affirmed, finding no abuse of discretion. While federal law does not mandate that a state speak in a single voice, Federal Rule of Civil Procedure 24 expresses a preference for it. The Legislature did not demonstrate that the Attorney General is an inadequate representative absent a showing he is acting in bad faith or with gross negligence. View "Wisconsin Legislature v. Kaul" on Justia Law

Lopez was born in Mexico in 1974, His mother, born in Mexico, acquired U.S. citizenship at birth through her mother. Mother entered the U.S. in 1978 and received a certificate of citizenship in 1990. Lopez was admitted to the U.S. as a lawful permanent resident in 1985. In 2009, he was convicted of drug crimes and was sentenced to 122 months’ imprisonment. In 2018, DHS began removal proceedings, alleging that Lopez was removable under 8 U.S.C. 1227(a)(2)(A)(iii); (a)(2)(B)(i). Lopez maintained that the law at the time of his birth (8 U.S.C. 1401; 1431–32) that prevented him from automatically deriving citizenship violated the Equal Protection Clause. The law denied automatic citizenship to children born abroad to one citizen non-resident parent and one noncitizen parent unless the citizen parent met a physical presence requirement. An IJ declined to consider the equal protection challenge and ruled that Lopez was removable. The BIA affirmed. The Seventh Circuit denied a petition for review, finding that the statute has a rational basis, so there is no equal protection violation. Lopez did not maintain that he is a member of a suspect or protected class or that his fundamental rights were at stake. The legislation was aimed at preventing the perpetuation of U.S. citizenship by citizens born abroad who remain there, or who may have been born in the U.S. but who go abroad as infants and do not return to this country. View "Ramos v. Barr" on Justia Law

Jack and Angela Howser decided that Angela’s estranged daughter, Jade, was failing to provide a suitable home for Jade’s four-year-old daughter, E.W. After unsuccessfully attempting to blackmail Jade, they enlisted the local police, the sheriff’s office, the county prosecutor, and a private investigator to help them. The group agreed that they would arrest Jade while Jade’s husband (Josh) was out of the house so that the Howsers could take the child. After midnight on Sunday night, a caravan of the sheriff, a deputy, the Howsers, and the private investigator set out for Jade’s home to arrest her for writing Angela a $200 check that had bounced. Once Jade was in handcuffs, an officer gave Jack the all-clear to come inside. The sheriff did not allow Jade to designate a custodian for E.W. or obtain her consent to giving E.W. to the Howsers. Jade sued the Howsers under 42 U.S.C. 1983 for conspiring with state officials to violate her due process right to make decisions regarding the care, custody, and control of her child. A jury returned a verdict in her favor. The Seventh Circuit affirmed, finding sufficient evidence to support the verdict and upholding the magistrate judge’s pretrial decision to exclude unfavorable information about Jade and Josh. The court upheld an award of $970,000 in damages. View "Green v. Howser" on Justia Law