Chicago Business Litigation Lawyer Blog

The federal government passed the Fair Labor Standards Act (FLSA) to ensure that American workers would be paid appropriately for the work they provide. While some people may think of the FLSA as a statute that is concerned only with getting workers their unpaid overtime, the language of the law is broad enough to ensure that employees are paid for all of their time spent working, regardless of whether that time is overtime or not. Our Downers Grove wage and hour class-action attorneys found a case in the Seventh Circuit Court of Appeals involving employees who were not paid for the time they spent donning safety gear and wanted to share it with our readers.

In Spoerle vs. Kraft Foods Global, Plaintiffs were employed in Defendant’s plant in Madison, Wisconsin preparing meat products as hourly workers and spent several minutes at the outset of each work day putting on steel-toed boots, hard hats, and other safety gear required to perform the job. Plaintiffs filed suit to challenge a trade-off -- struck in a collective bargaining agreement between Plaintiffs’ union and Defendant -- where Plaintiffs would not be paid for their time spent donning this protective gear in exchange for a higher base pay rate. The FLSA permits such a tradeoff under §203(o), but Plaintiffs argued that Wisconsin law has no equivalent exception, and therefore state law requires payment for time spent donning such gear. Defendant argued that the FLSA and federal labor laws pre-empt the state law, so the CBA agreement should be honored and the time spent dressing in safety gear should remain noncompensable. The district court found in favor of the Plaintiffs, and Defendant appealed.

On appeal, defendant argued that §203(o) was the federal government’s decision to “permit a collectively bargained resolution to supersede the rules otherwise applicable to determining the number of hours worked.” The Court of Appeals did not find this argument persuasive, however, because nothing placed in a CBA exempts an employer from state laws of general application. Therefore, the Court found that the district court did not err in ruling that Plaintiffs were entitled to be paid for their time spent equipping themselves with safety gear.

Continue reading "7th Circuit Court of Appeals Rules Employees Entitled to Compensation for Time Spent Donning Safety Gear Under State Law" »

Courts have been flooded lately with claims by non-exempt employees who have not been compensated for time spent logging into computer systems and performing other start-up procedures. As experienced overtime lawyers, DiTommaso-Lubin has been tracking many of these cases, and the Northern District of Illinois made a recent ruling on one such case.

In Kernats v. Comcast Corporation, Plaintiffs worked for Defendant as customer account representatives (CAE's) who performed non-exempt work and were paid on an hourly basis. Plaintiffs worked in one of Defendant's eight call centers in Illinois, and while all Plaintiffs did not perform exactly the same job, they did have the same job description and primary duty. Additionally, they all had similar training, were governed by the same employment policies, and were compensated in the same way. Also, all CAE's were allegedly required to first log into a work computer, load all of the necessary computer applications, and log into Defendant's phone system before the start of their shift. In addition to the customer service responsibilities, Defendant required CAE's to learn about new products, services, marketing campaigns, and review company emails.

Plaintiffs filed suit alleging that Defendant failed to compensate Plaintiffs for the time after they first logged in, but prior to their scheduled start time, which violated the Illinois Wage Payment and Collection Act (IWPCA). Plaintiffs also claimed that working this uncompensated time caused them to work more than forty hours a week. This entitled them to overtime compensation pursuant to the Illinois Minimum Wage Law (IMWL). After some limited discovery, Plaintiffs moved to certify two classes, one for each state law claim, under Federal Rule of Civil Procedure 23.

In making their ruling, the Court found that Plaintiffs met the threshold requirements of Rule 23(a) because the class members were subject to standardized conduct by Defendant. This conduct was the implementation of a company-wide practice allowing CAE's to work after their login, but before the start of their shift without being paid. The class-members' claims also were based upon the same legal theory, and thus met the minimal requirements of typicality and commonality. The Court then held that the requirements of Rule 23(b)(3) were met because the evidence required to prove liability that was common to the class significantly outweighed the evidence particular to the individual class members. The Court also found that a class-action was the preferable means for adjudicating the issues because the individual recovery for individuals would be relatively small, while the aggregate recovery would be quite large. As such, the Court ruled that the requirements of FRCP 23 were met and certified the class-action.

Continue reading "Court Certifies Class-Action for Unpaid Employee Login Time" »

Every day there are hard working people who are denied the overtime wages that they have rightfully earned. At DiTommaso-Lubin, we have much experience representing those with unpaid overtime claims in class-action litigation. As such, we track the changes in the wage laws and are always looking out for new court decisions in the field.

Alvarez v. City of Chicago is a recent class-action case brought by paramedics in the city of Chicago for the systematic miscalculation of their overtime wages. In so doing, Plaintiffs alleged that Defendant willfully violated the Fair Labor Standards Act (FLSA) when it failed to properly compensate the Plaintiffs. The parties each filed motions for summary judgment, and the trial court ruled in favor of Defendant. In making the ruling, the trial court found that the Plaintiffs were not similarly situated and they could not be “readily divided into homogenous subgroups.” The lower court then dismissed the claims and directed the parties to arbitrate the dispute.

On appeal, the Appellate Court disagreed with the trial court's decision, and held that the case could proceed by using sub-claims if the Plaintiffs were similarly situated and common questions predominated. The Court also held that the case should not have been dismissed; instead the Plaintiffs should be allowed to proceed individually if class certification is inappropriate. The Court then remanded the case with instructions for the district court to consider which form of judicial resolution would be most efficient.

Continue reading "Appellate Court Overturns Dismissal of Chicago Paramedics Unpaid Overtime Class-Action" »

We here at DiTommaso-Lubin have extensive experience as Joliet overtime class-action lawyers and are constantly scouring the federal court dockets in Illinois for cases that may help our practice. One particularly instructive opinion was issued by the Northern District of Illinois, Eastern Division earlier this year in Ottaviano v. Home Depot Inc.

In Ottaviano v. Home Depot Inc., the Plaintiff employees worked for Home Depot as assistant store managers, and allege that they and their fellow class members were misclassified as exempt employees. Plaintiff's claimed that Defendant's misclassification was intentional for the purpose of circumventing the Illinois Minimum Wage Law (IMWL). Defendant Home Depot denied the claims and filed to dismiss the action through a motion for summary judgment.

The named Plaintiffs had worked for Defendant between approximately two to six years, and had worked well in excess of forty hours per week during the entirety of their employment. During the time that the Plaintiffs worked for Home Depot, they were paid a salary and were required to work fifty-five hours a week. Home Depot requires that all assistant store managers (ASM), including Plaintiffs, go through a training stage for two to eight weeks before they are deemed to be a qualified and capable ASM able to fulfill the responsibilities required for the position. The trainee ASM's are classified as exempt by Defendants and are paid a salary during this period. Defendant has a universal policy of scheduling its ASM's for fifty-five hours per week, and Home Depot terminates assistant store managers who fail to work the hours they are scheduled.

Plaintiffs filed their class action alleging that they were owed overtime for the training period and for every other week of their employment with Home Depot. Plaintiffs contended that Defendant's policy of terminating ASM's who do not work fifty-five hours a week is effectively a wage reduction under the Federal Labor Standards Act (FMLA). Plaintiffs also argued that under the salary-basis test, any employee whose wages can be reduced by their employer is non-exempt. The Court did not find Plaintiffs' arguments persuasive, and in dismissing the claims Judge Dow cited a U.S. Supreme Court ruling that true exempt employees are disciplined by terminations, demotions, or restricted work assignments, as the Plaintiffs were, instead of wage deductions. The District Court went on to say that employers are permitted to set requirements for the overall number of hours worked by their exempt employees. Finally, the Court granted summary judgment to dismiss the overtime claims for the training period because they were barred by the applicable statute of limitations.

Continue reading "Illinois District Court Holds that Termination is Not a Wage Reduction under FMLA" »

We here at DiTommaso-Lubin often represent our clients in federal court, and our practice includes handling wage and hour disputes so we keep an eye on such cases filed in Illinois. In re AON Corp. is the consolidation of a New York case with an action filed in Illinois District Court to certify a wage and hour class action pursuant to Federal Rule of Civil Procedure 23(a). Plaintiffs allege violations of the Illinois Minimum Wage Law (IMWL) and Fair Labor Standards Act (FLSA) for unpaid overtime. In its opinion, the Court discussed whether the purported class met the four standards required for certification as set forth in FRCP 23(a). The Court analyzed the numerosity of class members, commonality of the issues between class members, typicality of the class representatives, and adequacy of representation proffered by the named Plaintiffs and their attorneys.

The Plaintiffs in this case are former employees of Defendant AON who worked as Associate Specialists, Client Specialists, and Senior Client Specialists in the Client Services Units and Policy Maintenance Units located at AON's facilities in Illinois and New York. Plaintiffs argue that AON improperly classified the purported class members as administrative employees, thereby violating the IMWL and the FLSA and entitling them to overtime compensation.

The Court found that the Illinois Plaintiffs satisfied the Rule 23(a) numerosity requirement because there were 515 members of the proposed class and joinder of that many actions would be impracticable. The commonality requirement was met because there is a common question of law as to whether the class members were properly classified as administrative workers. The Rule 23(a) typicality requirement was met because all of the claims arise out of the same act of classification and assert the same violation of the law. The adequacy requirement of Rule 23(a) was met because the named Illinois Plaintiffs suffered the same injury as the class and have pursued the case for over 2 years. Additionally, Plaintiffs' counsel has the requisite resources and experience in both class action and wage & hour litigation to adequately protect the interests of the class. Finally, the Court found that the requirements of Rule 23(b)(3) were met despite the fact that the class members have different clients and peripheral duties. The Court concluded that the class members' essential job functions were similar enough that the central legal issue regarding classification of each class member as an administrative employee under the IMWL predominated and that a class action was a superior method of resolving the case.

To conditionally certify a class under 216(b), Plaintiffs must make a modest factual showing to demonstrate that they and potential plaintiffs together were victims of a common policy or plan that violated the law. Secondly, after all or a significant portion of discovery is completed, the Court must perform a stricter examination of whether the class members are similarly situated. The Plaintiffs sought to apply the first stage of 216(b) analysis, while the Defendant asked the Court to perform the second stage inquiry. The Court held that the second stage analysis was improper due to a relative lack of discovery in the case thus far. A second stage 216(b) analysis would prejudice the New York Plaintiffs by failing to give them adequate opportunity to present a more complete evidentiary picture. Additionally, performing the second phase analysis was premature because potential plaintiffs had not yet received notice and the opportunity to opt into the suit.

The Court conditionally certified the class because there was uniformity between the class representative and the class members due to: the similar type of work they performed, the uniform Defendant-produced processes used to perform their jobs, and the common legal issue of misclassification.

In Re AON Corp. provides guidance for future wage and hour litigants by explaining the requirements for class certification under the Federal Rules of Civil Procedure. This case also provides clarification regarding class certification under the Federal Labor Standards Act. Plaintiffs who seek to certify a class must have some evidence for conditional certification, but also should be mindful that they must acquire more substantial evidence through discovery to fully certify the class under the FLSA.

Continue reading "Class Certification Under Federal Rule of Civil Procedure Rule 23(a)" »

Any business owner should keep abreast of laws and court rulings that can affect the way they conduct their operation and interact with employees. The law constantly evolves, and that is why our lawyers are vigilant in tracking changes that affect our clients. Citadel Investment Group v Teza Technologies is one such ruling that provides clarity regarding noncompetition agreements between employees and employers.

In this case, Defendants Malyshev and Kohlmeier worked for Plaintiff Citadel Investment Group until February of 2009, when they resigned. When Malyshev and Kohlmeier were initially hired by Citadel, they each signed a nondisclosure agreement and an employment agreement containing a noncompetition clause. The noncompetition clauses contained language giving Citadel the discretion to set the length of the restrictive period at zero, three, six, or nine months. Citadel elected for a nine month restricted period for both Malyshev and Kohlmeier upon their resignation.

Malyshev and Kohlmeier formed Defendant Teza Technologies two months after leaving Plaintiff Citadel in April of 2009. When Citadel discovered the existence of Teza and its status as an entity performing similar high frequency trading in July of 2009, the present legal proceedings began. Plaintiffs initially sought a preliminary injunction against Defendants based upon the noncompetition agreements signed by Malyshev and Kohlmeier. This injunction was granted in October 2009 for relief through November of 2009. The trial court made its decision based upon the agreed upon nine month period contained in the noncompete and calculated the time from February of 2009 when Malyshev and Kohlmeier resigned.

Citadel appealed the decision, and asked the appellate court to grant the injunction for nine months from October until July of 2010. Citadel argued that they had not received the benefit of the restricted period prior to the preliminary injunction being entered, and the Court should adjust the start date of the restricted period accordingly. The Court did not find the Plaintiff's argument persuasive and denied the appeal because the plain language of the agreements signed by Malyshev and Kohlmeier contained no provision allowing for an extension of time or modification of the commencement date. Thus, the restrictive covenant properly ended in November as was required by the agreement signed by both parties.

Citadel Investment Group v. Teza Technologies serves as a warning to business owners who utilize noncompetition agreements and a potential boon to employees who sign them. Whether you are a business already in a dispute over a noncompetition agreement or a former employee seeking employment with a new company in the same field, you should contact a Chicago business litigation attorney to be apprised of your rights.

Continue reading "Enforcing Noncompetition Agreements is Tricky Business" »

A recent decision by the Seventh U.S. Circuit Court of Appeals will have important implications for our practice as Illinois class action attorneys. In American Honda Motor Company Inc. v. Allen et al., No. 09-8051 (7th Cir. April 7, 2010), the Seventh ruled that trial courts must conclusively rule on the admissibility of expert testimony before certifying a class -- when the testimony is essential to the class certification decision. The case is a proposed class action filed in the Northern District of Illinois by people who bought Honda’s Gold Wing GL1800 motorcycle. The plaintiffs claim there is a defect creating unusual amounts of “wobble,” or oscillation of the front steering assembly.

To support a motion for class certification, the plaintiffs used a report prepared by motorcycle engineering expert Mark Ezra. Ezra used a standard of his own devising to support his opinion that the Gold Wings’ wobble was beyond what was reasonable to avoid overcorrections or fear by the rider. He tested one such motorcycle, found it insufficient and suggested that Honda could fix the problem by using a different shape of ball bearings. Honda moved to strike this report, claiming it was unreliable and that the testing based on one motorcycle was not reliably applied.

The district court agreed that Honda had raised some important concerns, and that class certification rested largely on Ezra’s report, but declined to exclude the report entirely so early in the case. It dismissed Honda’s motion without prejudice and certified two classes. Honda appealed the class certification decision, and the Seventh found the appeal appropriate, because the issue is “heavily contested” and has not been addressed at the appellate level.

The Seventh wrote that the district court started off correctly by starting an analysis of the expert testimony as provided by Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). Despite the detail in its analysis and the several troubling flaws it noted, however, the district court declined to exclude the report entirely “at this early stage of the proceedings.” By ruling in this way, the district court left an open question about which aspects of the report would be excluded, and ultimately, whether the plaintiffs met the standards for class certification. That was so insufficient that it was an abuse of discretion, the appeals court said.

Furthermore, the court wrote, the record shows “exclusion [of Ezra’s report] is the inescapable result when the Daubert analysis is carried to its conclusion.” The record shows Ezra’s report fails several tests laid out in Daubert and is “unreliable,” the Seventh wrote, which means it should not be admitted. And without admission of that testimony, the plaintiffs do not have enough evidence to show that their class meets standards of class certification. Thus, the Seventh vacated the lower court decision to grant class certification and remanded the case for further proceedings. In general, the court wrote, when the testimony is essential to the class certification decision, as it is here, a district court must conclusively rule on any challenge to the expert’s submissions or qualifications.

Continue reading "Courts Must Decide Admissibility of Questionable Expert Testimony Before Certifying Class" »

Our Illinois class action attorneys recently noted a Seventh Circuit decision ending a class-action case in the difficult realm of securities fraud. In Re Guidant Corporation, No. 08-2429 (7th Cir. Oct. 21, 2009), is a securities class action stemming from allegedly misleading statements Guidant Corp. made about its implanted defibrillators. A design flaw with certain lines of defibrillators was discovered in February of 2002, and by April, Guidant had corrected the problem in all of the new devices it made. However, the problem remained in machines already made, and Guidant failed to recall them or warn the public. All in all, Guidant knew in 2002 of at least 25 reports of short-circuiting from the older defibrillators. More reports emerged later.

Two years after this redesign, Guidant entered into merger talks with Johnson & Johnson. As part of these negotiations, it issued a press release expressing confidence about its growth prospects in the implanted defibrillator market. In their claim, plaintiffs said this was false and misleading because Guidant knew it still had liability for the Ventak defibrillators. Subsequent press releases on the merger also omitted this information, as were three merger-related forms Guidant filed with the SEC. However, in March of 2005, a young man died after his Guidant defibrillator short-circuited. Guidant issued several other SEC filings and press releases without disclosing this before it finally sent a letter to doctors in May of 2005 disclosing reported problems, an act prompted by an article about to be published in the New York Times.

The FDA recalled the defibrillators the next month, and Guidant’s stock dropped immediately. It dropped further when Johnson & Johnson announced that it was reconsidering the merger. All in all, the stock fluctuated between $63 a share and $80 a share until Guidant was purchased by Boston Scientific. The instant case is a consolidated class action filed against Guidant and eleven officers and directors as a result of these drops. In addition to alleging that all defendants made false and misleading statements about the company and omitted material information from their statements, it alleged that the individual defendants used insider knowledge and the approval of the Johnson & Johnson merger to sell stock during the period at issue.

Over the course of pre-trial motions, the plaintiffs attempted to amend their complaint at least three times, twice because of new information revealed in related product liability cases. At some point, Guidant moved to dismiss the complaint for failure to state a claim. The claims were brought under the Securities Exchange Act, which requires heightened pleading standards for plaintiffs alleging securities fraud. Specifically, the court found that the plaintiffs’ pleadings were not particular enough and failed to include facts showing that defendants knowingly and with malice misled investors. It dismissed the case with prejudice. It also declined to reconsider based on new evidence from a products liability case, and declined a motion to amend their complaint based on the same evidence. The plaintiffs appealed all three decisions.

In its analysis, the Seventh started by noting that plaintiffs had ample time to make changes to their complaint. In addition to the consolidated complaint from individual claims, it allowed an amendment at the start to change the class period. Plaintiffs notified the court twice of new evidence from other cases, but failed to amend their complaint with that evidence. The Seventh found that this was ample time for plaintiffs to amend their complaint to meet the admittedly strict standards provided for securities cases by the Private Securities Litigation Reform Act.

It then moved to the trial court’s denial of reconsideration of the dismissal. The plaintiffs claimed that it should have been reconsidered because they had new evidence from product liability cases, a standard ground for reconsideration. They acknowledged that those facts were older, but said the trial court stymied them by refusing to lift a stay of discovery. The Seventh found this unpersuasive, saying the trial court could have ruled either way without abusing its discretion. The trial court must have assessed the new evidence, it wrote, and decided that a new amended complaint would still have lacked the necessary specific facts and evidence of scienter. And the plaintiffs could have entered the new evidence into the record earlier. Thus, the district court did not abuse its discretion by denying reconsideration. For the same reasons, it was also not an abuse of discretion to deny the motion to amend, the Seventh said. Thus, all of the district court’s rulings were affirmed.

Continue reading "Investors May Not Go Forward With Flawed Fraud Claim, Seventh Circuit Rules" »

The Seventh U.S. Circuit Court of Appeals made a ruling this year that will be important to the work of our Chicago consumer class action attorneys. In Cunningham Charter Corp. v. Learjet Inc., 592 F.3d 805 (7th Cir. 2010), the court decided that federal courts retain jurisdiction under the Class Action Fairness Act, even when they decline to certify any class in the case at bar.

Cunningham bought one or more jets from Learjet and was dissatisfied. It filed a proposed class action against Learjet in Illinois state court for breach of warranty and product liability. Learjet removed it to federal court under CAFA, and Cunningham moved for class certification. That motion was denied, and without a class, the district judge thought it was appropriate to move the case back to state court. Learjet then petitioned for leave to appeal the remand order, and the Seventh agreed to hear it to resolve the issue of whether denial of class certification eliminates subject matter jurisdiction under CAFA.

The Seventh based its opinion almost entirely on the language of the Act. Crucially, the law says it applies to “any class action [within the Act’s scope] before or after the entry of a class certification order.” The majority wrote that this language was probably intended to give defendants the option of removing the case either before or after class certification. But they seized on the use of the indefinite article -- a class certification order rather than the class certification order. This word choice shows that the law is not limited to cases in which a class certification order is eventually issued, the court wrote. In addition the law’s definition of a class action is any civil action filed under rules authorizing a class action -- not as an action with a certified class. “As actually worded, (d)(8)... implies at most an expectation that a class will or at least may be certified eventually,” the court wrote.

Another part of the Act says a class certification order is “an order issued by a court approving the treatment of some or all aspects of a civil action as a class action.” This could imply that a class certification order is required for the claim to be a class action -- if read in isolation. But again, the definition of a class action in this Act is a claim that is filed as a class action, not necessarily certified as one, the majority wrote. The court interpreted this language to mean that a class-action suit cannot be maintained as a class-action suit without the eventual certification of a class.

The Seventh then reviewed previous federal appellate decisions in agreement with this interpretation, including Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n. 12 (11th Cir. 2009) as well as its own previous assumption in Bullard v. Burlington Northern Santa Fe Ry., 535 F.3d 759, 762 (7th Cir. 2008). If a state has different standards for class certification than Rule 23, the federal standard, the case could be denied class certification at the federal level, remanded, then continue as a class action at the state level. That would be contrary to the purpose of the Act, the court said. Finally, the Seventh cited the general principle that proper diversity jurisdiction is not revoked by changes that take place after the suit is filed. If diversity jurisdiction is proper before a class is certified, the majority wrote, it’s proper after a class is not certified.

Continue reading "Seventh Circuit Upholds Federal Jurisdiction Under CAFA When Class Certification Is Expected" »

A recent decision by the Seventh Circuit caught the notice of our Illinois trademark infringement litigators. Schering-Plough Healthcare Products Inc. v. Schwarz Pharma, Inc. et al, Nos. 09-1438, 09-1462, 09-1601 (7th Cir. Oct. 29, 2009) is a dispute between the original maker of a laxative whose patent has expired and the companies that now manufacture a generic version. Schering, the original patent holder, sued four companies for claiming that the drug’s active ingredient is not available over the counter, when Schering does manufacture an over-the-counter version. The trial court in the case dismissed Schering’s complaint, a decision the Seventh Circuit upholds here.

The laxative in question was originally sold as the prescription drug MiraLAX. After its patent expired, the four defendants were authorized to sell generic prescription versions, either as GlycoLax or under the chemical name polyethylene glycol 3350. All four defendants’ drugs have labels stating that the active ingredients in their drugs are sold only by prescription. This is a requirement of the federal Food, Drug and Cosmetics Act, but it is no longer entirely true. After the generic versions were approved, Schering won approval for an over-the-counter version of MiraLAX. It brought a trademark lawsuit against the defendants, claiming their labeling makes false and misleading statements that misrepresent the nature of their own and Schering’s products, and constitute misbranding under the FD&C Act.

Importantly, the FDA is conducting its own investigation into whether the generic drugs are now misbranded. Simultaneous sales of the same active ingredient in generic and over-the-counter versions violates federal law, which the FDA is also trying to resolve. The Seventh Circuit noted that the FDA may resolve Schering’s lawsuit by finding that the generic drugs may no longer be sold, or that their labels are not false and misleading under the FD&C Act. In either case, the court wrote, it would rather defer that decision to the FDA. This was also the decision of the trial court in the case, which dismissed Schering’s case without prejudice, suggesting that the company re-file after the FDA’s decision, if necessary. Schering appealed, asking for a judgment in its favor rather than a trial. The defendants cross-appealed, arguing that the case should have been dismissed with prejudice.

The Seventh started by noting that a dismissal without prejudice is appealable unless the defect leading to it is immediately curable. It then turned to the merits of Schering’s claim. Letters from FDA regulators the company cited are irrelevant, the court said, because they did not determine the final outcome of the agency’s review. It also dismissed Schering’s argument that the generic drugs were misbranded under the FD&C Act because their labels say “prescription only,” noting that prescription drugs are required to carry this warning. And it noted that federal courts have previously resolved conflicts between FDA labeling requirements and intellectual property law, including in SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharmaceuticals, Inc., 211 F.3d 21 (2d Cir. 2000).

Schering has been “coy” about what kind of labeling it would find sufficient on the generic drugs, the court wrote, leaving suggested wording out of its briefs entirely and agreeing with suggested wording only under pressure at oral arguments. That reticence, the court wrote, made it believe this is not a matter that “can be resolved intelligently without a decision by the FDA.” Because it has more experience with how consumers interact with drug labeling, the court said, the FDA should decide on proper labeling before a Lanham Act claim is filed. Thus, the Seventh Circuit upheld the trial court’s decision to dismiss Schering’s claim in anticipation of the FDA’s ruling. For the same reason, however, it also upheld the district court’s decision to dismiss without prejudice -- so Schering can re-file its claim, if necessary, in the future.

Continue reading "Generic Drugs Not Misbranded Under Lanham Act, Seventh Circuit Rules" »

As Chicago class-action attorneys, we were pleased to see that the Seventh Circuit upheld a decision in favor of retired UPS employees protesting a change in their employee contributions to health benefits. In Green v. UPS Health & Welfare Package for Retired Employees, No. 09-2445 (7th Cir. Feb. 10, 2010), a class of participants in the UPS retiree health plan (the Plan) belonging to the International Brotherhood of Teamsters Local 705 challenged a decision by UPS to raise the amount of health insurance contributions required of them, but not of other plan participants.

UPS employs Teamsters and negotiates its collective bargaining agreements with the international office of the IBT as well as with a few locals, including Local 705. Local 705’s agreement at issue here was negotiated in 2002 and expired on July 31, 2008. That agreement said UPS would provide the same health plan to Local 705 retirees that it provides to all retirees. The Plan said UPS may raise participants’ contributions once a certain threshold average annual cost per participant is reached, but that each employee shall share equally in the cost. If an additional contribution is retired, the Plan said additional contributions would not be required until after the collective bargaining agreement ended.

The average annual cost of health care rose above the threshold in 2006. In October of 2007, UPS sent out a notice that retirees’ monthly contributions would increase from $50 to $114 as of January 1, 2008. The international union complained that the increase was being implemented too early, before the July 31 end of the original collective bargaining agreement. However, it was also negotiating a new collective bargaining agreement with UPS at the time and eventually won an agreement from UPS not to implement the new fee until after the new agreement expired. This was not the case for Local 705, which complained that it wouldn’t even start a new bargaining process until July 31. UPS responded by delaying the extra payment until after the agreement expired.

After the July 31, 2008 expiration date, Local 705 negotiated a new collective bargaining agreement incorporating the Plan with no changes. In January of 2009, UPS sent out another letter saying that effective in February, it would increase retirees’ monthly contributions from $50 to $157.58 to $472.75, depending on how many family members were covered. This was not applied to the international Teamsters, who were under a separate agreement. The Local 705 retirees filed this lawsuit, arguing that their monthly contribution, higher than the international union’s, violated the Plan’s provision that all retirees would share equally in a rate hike. They also argued that the Plan barred UPS from making the rate hike effective before the end of their collective bargaining agreement. They asked for an injunction against the rate hike and agreed to a bench trial. The court found for the retirees on the “shared equally” issue and for UPS on the timing of the rate hike. Both appealed.

On appeal, the Seventh Circuit agreed with the trial court that the “shared equally” language applied to payments. UPS had argued that this language applies to how it calculates contributions, but the Seventh and the district court both found this was contradicted by the plain language of the Plan and thus “arbitrary and capricious” under Hess v. Hartford Life & Accident Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001).

However, the appeals court also upheld the district court’s ruling that UPS could collect the additional contributions before the end of the current collective bargaining agreement. UPS interpreted “current” to refer to the 2002 agreement, when the Plan’s language was written; Local 705 interpreted it to refer to the 2008 agreement. The Seventh found that the interpretation by UPS was reasonable, in part because it had incorporated the Plan into the collective bargaining agreement without changes. It also said the December 2007 notice that rates would go up was further evidence that UPS was using the 2002 agreement as “current.” Thus, its interpretation was not arbitrary and capricious. The judgment of the district court was affirmed on both counts.

Continue reading "Seventh Circuit Rules UPS Violated ERISA by Raising Contributions for Only Some Retirees" »

As Chicago employment contract litigation attorneys, we noted a favorable decision for employees from the Seventh Circuit in October. Lewitton v. ITA Software, Inc., No. 08-3725 (7th Cir. Oct. 28, 2009) upheld a former employee’s right to buy stock options that had vested during his employment, even though he tried to make the purchase after leaving. Derek Lewitton was hired in April of 2005 as vice-president of sales at ITA Software, which makes a software program that compares the prices of airplane flights. His contract said some of his stock options would be forfeited if ITA didn’t meet certain revenue goals, subject to a time delay to account for delays in the development of a new program called 1U.

Unfortunately, 1U was never widely adopted among ITA’s clients, and ITA scaled it back considerably. Lewitton left ITA in May of 2007. In August of the same year, he tried to buy 138,900 shares of ITA stock. ITA let him buy only 34,722, arguing that the remaining 104,178 were forfeited under his contract. Lewitton sued ITA for breach of his employment contract. ITA removed the case to federal court under diversity jurisdiction, after which Lewitton moved for summary judgment, arguing that his employment contract was clear on his right to purchase stock options. The judge granted summary judgment, agreeing that the contract “unambiguously” granted 5,660 options for each month he was at ITA, and that no forfeiting events had taken place. ITA appealed.

The Seventh Circuit started by examining whether the language of Lewitton’s employment contract was ambiguous under Illinois law, which both parties agreed applies. The principal question, the court wrote, is whether the contract unambiguously allows Lewitton to buy the 5,660 shares per month he claims. The contract specifies that those shares are forfeited if ITA didn’t meet certain goals in by the end of an assessment period, but that assessment period would be deferred it the development schedule for 1U was “materially deferred.” In trial court, both sides agreed that 1U’s development didn’t go the way it was expected to go. On that basis, the trial court found that the assessment period was never triggered, and thus the stock options were not forfeited. On appeal, ITA argued that “materially deferred” was ambiguous and not intended to apply when ITA put the program on indefinite hold.

The Seventh disagreed, finding the term unambiguous. The ordinary dictionary definitions of the words are clear, the court wrote. And in fact, the contract includes parts that explain a material deferral by using the words “defer” and “delay” interchangeably. That example clearly shows that the parties agreed to delay the assessment period until after 1U was launched. Because 1U was never launched, the assessment period was never started, the court wrote, and thus the stock option forfeiture provision does not apply. The court dismissed ITA’s argument that the contract was never intended to give Lewitton more shares than other ITA executives. That argument was supported by negotiations and internal ITA communications, the court wrote, and caselaw requires it to consider none of that extrinsic evidence. Furthermore, the contract had a clause specifying that it supersedes all prior “agreements, understandings or negotiations.”

ITA also argued that even if the contract is unambiguous, the case presented an issue of material fact inappropriate for summary judgment. The issue in question, ITA said, is whether ITA really did delay the 1U program rather than ending it altogether. However, the court found that this was “just another attempt to create ambiguity where none exists.” At the district court, the Seventh Circuit noted, ITA made several statements through affidavits and discovery conceding that work was still being done, although resources devoted to it were significantly reduced or nonexistent. Nothing in the record points to a genuine issue of material fact on this question, the court wrote, so the trial court was upheld in its summary judgment order. Finally, the Seventh dismissed ITA’s contention that the district court should determine whether the options are valid under Delaware law (it’s a Delaware corporation), because it had explicitly waived that argument in an agreed order. Thus, the Seventh upheld the district court on all issues.

Continue reading "Former Employee’s Stock Options Remain Valid Under Employment Contract" »

Our Chicago business law lawyers were very interested in a recent Supreme Court decision upholding an established standard for determining when a mutual fund’s investment advisor has breached his or her fiduciary duty to shareholders. In Jones et al. v. Harris Associates L.P., No. 08-586 (March 30, 2010), three shareholders in the Oakmark family of mutual funds sued the funds’ investment manager, Harris Associates. They alleged that Harris charged the Oakmark funds twice as much as it did other funds, but did the same work. The situation was not challenged by the funds’ board members because they were all appointed by Harris Associates, the shareholders claimed. As a result, they said, the Oakmark funds paid $37 million to $58 million more than other funds for the services of Harris Associates in just one year.

Mutual funds typically use outside investment advisors to manage all of their affairs, including picking board members. Because this creates the potential for abuse, Congress enacted the Investment Company Act of 1940 to protect mutual fund shareholders. Among other things, that act creates a fiduciary duty for investment advisors with respect to their compensation, and allows shareholders to sue if that duty was breached. The plaintiff shareholders in this case sued Harris Associates in Chicago federal court for a breach of that fiduciary duty, alleging that it charged fees disproportionate to the services rendered and that were not equivalent to fees negotiated at arm’s length. Harris Associates successfully moved for summary judgment. The trial court, applying the standard laid down in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (CA2 1982), held that there was no evidence that the fees were outside a range that could have been produced by arm’s length negotiations.

Plaintiffs appealed to the Seventh Circuit, where their claim still failed, but for different reasons. The Seventh rejected the Gartenberg standard, saying it relied too little on markets. Instead, the panel applied a standard from trust law, saying a trustee is free to negotiate any compensation that the trust is willing to pay. Similarly, a fiduciary’s compensation need not be limited by an arbitrary cap, the panel wrote. It suggested that market forces would help keep fees reasonable and noted that comparing fees for other Harris Associates clients is unfair because different clients require different amounts of work. An investment advisor’s compensation would only be subject to interference, the Seventh wrote, if the amount was so out of the ordinary that observers might think “that deceit must have occurred, or that the persons responsible for decision have abdicated.”

After the Seventh denied an en banc rehearing, with a dissent by Judge Posner, the Supreme Court took up the case to resolve a split in the circuits over the standards used to judge breaches of the Investment Company Act. In its unanimous opinion, the court found that Gartenberg was indeed the correct standard, reversing the Seventh Circuit. That standard has been adopted by other federal appeals courts, the high court noted, as well as by the SEC. The opinion, authored by Justice Alito, quoted at length from the Second Circuit’s decision in Gartenberg, which among other things said that “[t]o be guilty of a violation of [the Act], ... the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” This approach is consistent with other protections in the Act and the Act’s role in federal regulations.

The Seventh Circuit erred by focusing almost entirely on full disclosure to determine a breach of fiduciary duty, the Supreme Court wrote. Courts should take a more nuanced look, giving deference to well-informed, independent board decisions and avoiding over-reliance on market comparisons. Thus, the court vacated the Seventh Circuit’s decision and sent the case back to trial court.

Continue reading "Supreme Court Upholds Arm’s Length Standard for Setting Fees for Mutual Fund" »

As Illinois and Chicago business law attorneys, we were interested to see a recent Seventh U.S. Circuit Court of Appeals opinion in an antitrust and trade libel lawsuit filed here in the Northern District of Illinois. In Tamburo v. Dworkin, 2010 WL 1387299 (C.A.7 April 8, 2010), John Tamburo and his software business filed suit against multiple defendants in the United States, Canada and Australia. Tamburo sought to pursue federal and state antitrust claims, as well as state tort claims for defamation, tortious interference with his business and civil conspiracy. He also wanted a declaratory judgment that he did not violate any federal laws. The district court dismissed all of the claims, but the Seventh reinstated some of the tort claims, reinforcing the rules for personal jurisdiction over foreign defendants, but applied to Internet-related claims.

Tamburo and his business make dog-breeding software, including an online database full of dog pedigree information. To get data for this database, he used publicly available information found on the websites of four of the defendants, dog pedigree enthusiasts in Ohio, Colorado, Michigan and Canada. These defendants reacted critically, launching a campaign of email “blasts” and website postings accusing Tamburo of theft, hacking and selling stolen goods. They urged readers to boycott his products. The Australian defendant, a software company with a similar pedigree software company, received some of these messages and reposted them to a private mailing list of dog breeders who had bought its software. Tamburo sued all of them in Chicago federal court, where the defendants moved to dismiss for lack of personal jurisdiction. The trial court granted this motion as to all claims and Tamburo appealed.

The Seventh Circuit only partially agreed. Right away, it upheld the dismissal of the antitrust claims, which it said were “woefully inadequate” under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 2007), which heightened the requirements for stating a claim in a Sherman Act case. Under that decision, plaintiffs must plead believable antitrust injuries that show an anticompetitive effect, which the court said Tamburo failed to do. Tamburo’s federal pleadings are conclusory, the court wrote, failing to give any evidence of a specific antitrust injury or even what kind of violation he alleges. The state law claims have the same failings, the majority said, so both should be dismissed, but for failure to state a claim rather than lack of personal jurisdiction.

This removed the only federal claim in the case, which meant personal jurisdiction must be decided under Illinois’ long-arm statute. None of the defendants had enough contact with Illinois to create general personal jurisdiction, the majority said; in fact, the Canadian and Australian defendants had never been there. However, the court did find evidence of personal jurisdiction specific to this case. The court applied Calder v. Jones, 465 U.S. 783 (1984), in which the Supreme Court said actress Shirley Jones could assert personal jurisdiction in California over a Florida-based magazine and its writers, whom Jones accused of libel. That case gave a test to find personal jurisdiction: intentional and allegedly tortious conduct, expressly aimed at the foreign state, with the defendant’s knowledge that the plaintiff would be injured there.

The bulk of the Seventh’s analysis was aimed at the second prong -- “expressly aimed.”
The court said personal jurisdiction was appropriate for the U.S. and Canadian defendants because they were accused of disseminating information about Tamburo widely through websites and emails. In fact, the majority wrote, some of the messages gave Tamburo’s address and urged readers to harass him and boycott his product. This is enough for personal jurisdiction under the “express aiming” test. This wasn’t true of the Australian defendant, however, because the owner of the company was alleged only to have sent the information to a private mailing list -- not enough to show “express aiming” at Tamburo in Illinois.

Finally, the court examined whether jurisdiction over the individuals would “offend traditional notions of fair play and substantive justice.” It found that hearing the case in Illinois would not be unfair. The defendants have diverse citizenship, the court noted, and it would be unreasonable to ask Tamburo to sue them all separately. Illinois has a strong interest in providing a forum for residents like Tamburo to settle disputes, whereas other states have no substantial interest in the case. Thus, jurisdiction in Illinois is fair. For all of these reasons, the Seventh Circuit upheld the dismissal of the antitrust claims, upheld the dismissal of the claims against the Australian defendant and reversed the dismissal of the tort-law claims against the U.S. and Canadian defendants.

Continue reading "Seventh Circuit Finds Personal Jurisdiction in Defamation and Tortious Interference Claim" »

Our Illinois overtime rights lawyers were interested to see a recent ruling on unpaid overtime from the Seventh U.S. Circuit Court of Appeals. In Musch v. Domtar Industries, No. 08-4305 (7th Cir. Nov. 25, 2009), Alan Musch and his colleagues were maintenance workers at two Wisconsin paper mills owned by Domtar Industries. In their lawsuit, they say their job routinely exposes them to dangerous chemicals, requiring them to put on special protective gear before shifts and to shower and change after. They are not paid for the time it takes to do those things, however. They sued for unpaid overtime pay for the showering and changing time, as well as for time spent shaving, a requirement under Domtar company policy.

After the case was filed, Domtar moved for summary judgment dismissing the case. It argued that company policy says workers should shower and change immediately after exposure to a hazardous chemical, even if that means the employee goes into overtime. Because it has that policy, the company argued, overtime compensation was inappropriate. The district court agreed and granted summary judgment for Domtar. After the court declined to reconsider, the plaintiffs appealed both rulings. They argued that the district court missed or ignored evidence showing that chemicals actually were on workers’ skin; that is, they do not shower because they merely think they might have the chemicals. Thus, changing and showering time is appropriate for overtime pay under the Fair Labor Standards Act.

In its analysis, the Seventh Circuit started by noting that the FLSA and Wisconsin law both require employers to pay for all of the work employees do. However, federal law makes a distinction between work and preliminary or postliminary activities. Changing and washing is ordinarily considered preliminary or postliminary, the court wrote, but may sometimes be considered part of the job if it’s “integral” and “indispensable” to the job. The plaintiffs argued evidence showed that they didn’t always realize there were chemicals on their skin until the end of shifts, meaning showering after shifts would be following the company’s stated policy.

The Seventh Circuit disagreed. The plaintiffs’ evidence showed that showers were sometimes necessary, it wrote, but not that the Domtar policy of showering after any exposure was insufficient. Furthermore, the court said, employees admitted to bringing work clothes home to wash them, suggesting that they don’t believe the chemical exposure is that serious. Finally, employees are free to seek overtime under the existing company policy when they are required to shower and change, the Seventh said. Because these are all “normal conditions” under the meaning of the FLSA, the post-shift changing and showering is postliminary activity, not an essential job requirement, the court wrote. Thus, it upheld the trial court’s orders.

Continue reading "Employees Not Entitled to Compensation for Showering Time After Shift" »

In a case based on the federal Truth in Lending Act (TILA) and Illinois Consumer Fraud and Deceptive Business Practices Act, the Seventh Circuit has ruled that a victim of a bait-and-switch scheme for title insurance may sue his lender. Doss v. Clearwater Title Co., No. 07-2400 (7th Cir. Dec. 24, 2008). Charles Doss refinanced his mortgage in 2004, using a company called The Loan Arranger that did indeed arrange a loan for Doss with Franklin Financial Company. Franklin asked Doss to get title insurance, which he did through Clearwater Title Company.

Clearwater turned out to be an unlicensed company with a secret affiliation with The Loan Arranger. Doss was told via closing documents that the title insurance cost was $500, but was actually charged $1,470. In late 2006, Doss sued all three companies plus JP Morgan Chase, which held his mortgage, and Saxon Mortgage Services, Inc., which serviced it. However, Chase and Saxon had filed for foreclosure against Doss earlier in that year, and in response to the lawsuit, filed papers claiming that Doss had no claim because he had already sold his home. Doss replied that their quitclaim deed was a forgery and that indeed, he had filed documents showing he was still the owner. The trial court sided with Chase and Saxon and dismissed the homeowner's claims.

Doss appealed; while the appeal was pending, an Illinois trial court found that the property had not changed hands. The Seventh Circuit first examined the claim by Chase and Saxon that the trial court had no jurisdiction under the TILA because Doss had sold the property. That was irrelevant, the court said, because the question was whether Doss had actually sold the property. On the dismissal itself, the Seventh found that the trial court should have treated the sale allegations by Chase and Saxon as a motion for summary judgment, which would have given Doss a chance to present and support his own assertions. This would have led the trial court to conclude that there was indeed a genuine issue of material fact in the case and continued the litigation, the opinion said.

Thus, both the TILA claim and the state claims that were dismissed alongside should be reinstated, the appeals court concluded. The court reversed and remanded the decision. Along the way, it noted that defendant Franklin was in a state of ambiguity. Clearwater and The Loan Arranger had settled with Doss, but the court had entered default judgment against Franklin. Franklin moved to set it aside, but that motion was mooted when the trial court dismissed the case. The appeals court, expressing no opinion on the motion's merits, pointed out that the default judgment was still in place.

Violations of the Truth in Lending Act are a type of billing fraud -- one that may go unnoticed because of the complexity of loan documents. Federal TILA claims are on the rise, due in part to the financial crisis in the mortgage industry. Consumer protection law firm DiTommaso-Lubin represents consumers who have been harmed by violations of the TILA or other types of billing fraud, including unauthorized charges on bills from hotels, health clubs and more. Based in Oak Brook, Illinois and Chicago, our Oak Brook and Chicago civil litigation lawyers represent clients from all over the Chicago area including Naperville, Aurora, Highland Park, Northbrook, Wilmette, Wheaton, Joliet and Waukegan and throughout Illinois and nationally. To speak with us about a possible violation of your own rights as a consumer, you can contact us through our Web site for a free consultation.

In a Fair Debt Collection Practices Act class action, the Seventh U.S. Circuit Court of Appeals has ruled that a bill collector’s failure to correctly break down a bill into principal and interest does not violate that Act. Wahl v. Midland Credit Management, No. 08-1517 (7th Cir. Feb. 23, 2009) was a class action lawsuit alleging that debt collectors violate the FDCPA when they send out bills that state the correct total amount but break down the charges incorrectly.

Plaintiff Barbara Wahl had just $66.98 on a credit card when she sustained a stroke and racked up much larger medical bills during a time when she couldn’t work. The credit card went unpaid and eventually, the balance was $1,149.09, mostly in interest and late fees. Midland purchased the debt in January of 2005 and started sending demand letters to Wahl. The letter at issue arrived April 15, 2005, listing both the “current balance” and “amount due” at $1,160.57. On the back side, it listed the “principal” as $1,149.09 and the “accrued interest” as $11.48. This was followed by a similar letter listing a higher interest. The letters construed the “principal” as the total value of the debt Midland had bought, including interest accrued with the original creditor.

Wahl filed a proposed class-action lawsuit in federal court for the Northern District of Illinois. One of her two claims was that Midland had violated the FDCPA by incorrectly stating that the principal on her account was $1,149.09 rather than breaking down the original principal, the original interest and the new interest. Debt collectors are not required by law to break down charges, it said -- but when they do, the law requires that the breakdown not contain false or misleading information. On cross-motions for summary judgment, the trial court ruled in favor of Midland. Wahl appealed.

On appeal, the Seventh Circuit agreed. Wahl relied on language from the FDCPA prohibiting “[t]he false representation of... the character, amount, or legal status of any debt,” they said, and argued that this meant she need only show that the breakdown of charges was outright false. The court disagreed, saying it has consistently tested for violations of the act on whether the disputed action would mislead an unsophisticated consumer. If it would not, the court said, it cannot find a violation. Furthermore, the judges argued, Wahl’s argument that the statement was outright false is not correct because Midland’s breakdown of charges was perfectly correct in Midland’s eyes -- it had paid for $1,149.09 in debt and the interest it added was its own interest, not the original creditor’s.

The Seventh Circuit also said Wahl could not overcome the precedent it set in Barnes v. Advanced Call Center Technologies, LLC, 493 F.3d 838 (7th Cir. 2007). In that case, the court rejected an argument that a bill collector had violated the FDCPA by failing to state the total balance due, listing only the amount in collections. There, the court ruled that the correct amount of debt to list was the amount that the debt collector was seeking -- not that amount plus the amount owned by the original creditor. In both cases, the original creditor is irrelevant to the transaction at hand. “Wahl’s argument rests on empty semantics and conflicts with Barnes,” the Seventh wrote, and thus the summary judgment order was upheld.

DiTommaso-Lubin has an active practice in Fair Debt Collection Practices Act litigation, focusing on protecting consumers from illegal, misleading and harassing behavior by debt collectors. Our debt collection abuse lawyers are based in Chicago and Oak Brook, Illinois, but we help clients throughout the United States, in both individual lawsuits and class actions. If you’re being harassed by bill collectors or they are using fraud and deception to charge fees you don't owe, you don’t have to put up with it. For a free, confidential consultation, please contact us online or call us toll-free at 1-877-990-4990.

In a long-running consumer privacy violation case, the Seventh U.S. Circuit Court of Appeals has denied damages to a group of homeowners whose mortgage company sold their information to telemarketers. In Mirfasihi v. Fleet Mortgage , No. 07-3402 (7th Cir. Dec. 30, 2008), Fleet Mortgage Company sold information on 1.6 million clients to telemarketers, without those clients' permission. Two nationwide classes were certified: a class of people who bought products from the telemarketers (who used deceptive practices in their sales) and a class of people who merely had their information shared. This appeal comes from the latter group, some of whose members objected to a proposed settlement that gave them no damages.

In its analysis, written by Judge Posner, the court started by agreeing with the appellants that their claims may have some value under state consumer protection laws, despite the trial court's conclusion that they did not. Many state statutes allow statutory damages even when no actual harm is present. However, the majority wrote, the information-sharing class had no claim in a class action -- only in individual actions. And no individual plaintiff has demonstrated a willingness to sue for the "modest statutory damages" available under state laws, despite eight years of litigation and two prior appeals to the Seventh Circuit, the judge wrote.

The court turned next to the objectors' claims under the federal Fair Credit Reporting Act (FCRA), which allows statutory damages of $100 to $1,000 per willful violation, even if no actual harm resulted from the violations. This claim also failed, because class members had not brought it up until their second round in trial court. Furthermore, the majority wrote, the FCRA claim is frivolous because Fleet is not a consumer reporting agency, as the law requires; agencies that merely pass on information about debts owed to it are not covered by the law. And under the FCRA, a report on transactions only between the customer and the agency making the report is specifically excluded from the definition of a "consumer report."

Thus, the court concluded, the claims of the information-sharing class actually are worthless, although defendants are still free to settle if they believe doing so is in their best interests. The opinion then goes on to strongly criticize the worth of the claim itself, the prolonged litigation, the objectors' request for attorney fees and the class action system in general. The decision of the trial court to award nothing to the objectors was affirmed.

The Chicago and Wheaton, Ill., law firm of DiTommaso-Lubin works often with the FCRA, as part of our privacy violations and consumer protection practice. We have handled FCRA "firm offer of credit" cases in our home state of Illinois and states around the country, in tandem with local counsel. If you think you may be a victim of improper and illegal credit reporting violations and you’d like to know more about your options, please contact us today to speak with an experienced consumer protection attorney.

In a breach of implied contract lawsuit, a Wisconsin auto dealership must have a new trial because the original trial judge misconstrued Wisconsin law on quantum meruit and unjust enrichment, the Seventh U.S. Circuit Court of Appeals ruled. Lindquist Ford, Inc. v. Middleton Motors, Inc., Nos. 08-1067 & 08-1689 (7th Cir. February 25, 2009).

Middleton Motors, a Ford dealership near Madison, Wis., was a struggling business when it asked the more successful Lindquist Ford of Iowa for financial and management help. In their initial negotiations in 2003, they agreed that Lindquist’s manager, Craig Miller, would manage both dealerships and be compensated by Middleton with a percentage of the profits once he made the dealership profitable again. No deal was struck at that time, but nonetheless, Miller started managing Middleton.

In subsequent months, negotiations ran aground when Lindquist repeatedly did not offer a cash infusion, proposed as an investment in the business, that Middleton wanted. During this time, Middleton repeated several times that Miller’s compensation would be a percentage of Middleton’s profits when the dealership was profitable again. About a year into this situation, Middleton fired Miller, frustrated that the dealership was still unprofitable and no deal had been reached on a cash infusion. Two months after the firing, Miller sent Middleton a letter demanding a salary for 2003, and half of profits for the next two years. Middleton disagreed that it owed Miller anything.

Lindquist and Miller sued for breach of contract, promissory estoppel, quantum meruit and unjust enrichment. The trial court granted summary judgment on the first two counts, but held a bench trial on the latter two. At trial, it excluded a large amount of evidence about the dealerships’ negotiations, the percentage-based compensation to Miller and the risk to Middleton, because it believed that the only important issues were damages and whether Lindquist could prove that there was a quasi-contract by showing a mutual agreement through words and actions. It found for Lindquist and Miller. Middleton appealed.

On appeal, the Seventh Circuit found that the trial judge had profoundly misinterpreted Wisconsin law on quantum meruit and unjust enrichment, possibly because the laws are confusingly phrased. Both concepts are quasi-contractural theories, the judges wrote, but quantum meruit is a contract implied by law and unjust enrichment requires no finding of any features of a contract. This contradicted the trial judge’s heavy reliance on Theuerkauf v. Sutton, 306 N.W.2d 651, 658 (Wis. 1981), which was a contract implied by fact case that mentioned quantum meruit only in passing. Applying a test from Theuerkauf, they wrote, was inappropriate to decide quantum meruit claims and excluded large amounts of evidence that was necessary to determine whether there was a contract implied by law. Thus, a new trial was necessary.

The Seventh also ordered a new trial on the unjust enrichment claim, but not because the trial court had misconstrued that principle. Rather, they wrote, it’s not clear that this case meets the third element of an unjust enrichment test in Wisconsin: that it would be inequitable for Middleton to retain the benefits of Miller’s work without paying him. Again, the judges wrote, a substantial amount of evidence on this question was excluded by the trial court, making it necessary to retry the claim. If the trial court determines on remand that Miller did not reasonably expect to be paid unless he made Middleton profitable, and that he could not after a fair attempt, the Seventh ordered the trial court to enter judgment for Middleton.

Based in Chicago and Oakbrook Terrace, Ill., near Wheaton and Naperville DiTommaso-Lubin represents clients in Illinois and throughout the Midwest in complex business litigation matters, including federal and Illinois breach of contract lawsuits. Our Chicago breach of contract lawyers represent parties to all kinds of contracts, including contracts implied by law or by fact. If you need help from an experienced business litigation attorney and you’d like to learn more about how we can help, please contact us by email or call 1-877-990-4990 to set up a confidential consultation.

In a consumer protection and debt collection case, the Seventh Circuit has decided that a Wisconsin trial court was correct to grant summary judgment to a class of Cingular Wireless customers. Seeger v. AFNI, Inc., No. 07-4083 (7th Cir. December 8, 2008). The Cingular (now AT&T) customers had sued AFNI, Inc., a debt collector for Cingular, alleging it was charging a collection fee that consumers hadn't agreed to and that was not permissible under Wisconsin law. Responding to a summary judgment motion by a certified class of consumers, the trial court found that AFNI violated both the Fair Debt Collection Practices Act (FDCPA) and the Wisconsin Consumer Act.

The plaintiffs were Cingular customers in Wisconsin. Each had signed a contract agreeing to pay the fees of a collection agency. They fell behind in their payments and eventually received letters from debt collector AFNI, which had bought their debt from Cingular, saying they owed a collection fee of 15% of the original debt. A second letter included the 15% fee in its total balance due. The plaintiffs sued, saying neither the contracts nor Wisconsin law allowed a separate collection fee for the owner of the debt (as opposed to a third-party debt collector). The trial court granted summary judgment to AFNI on one state claim and to the plaintiffs on another state claim, as well as the FDCPA. AFNI appealed.

The appeals court first rejected AFNI's argument that its debt collection practices fall under Wisconsin laws allowing wronged parties to collect damages for breach of contract. If it could prove this, the court wrote, it would also need to prove that the 15% fee reflected its actual costs. However, the court pointed out that AFNI presented no evidence that would prove this, and general debt collection industry practices don't support any such assumption.

AFNI next argued that it is entitled to collect fees as Cingular's assignee, since customers signed contracts with Cingular agreeing to pay fees charged by a third party. The district court found that the contracts authorize a collection fee only when Cingular uses a third party, not when Cingular does the collection work itself. AFNI argued that it could collect the fee as a reimbursement if it had paid that fee to Cingular. But as the appeals court pointed out, it did not pay such a fee, and no evidence in the record shows that AFNI's fee could be considered a referral fee authorized by the contract.

Finally, the court considered whether AFNI's violation of the law could be considered a bona fide error under the FDCPA, which removes liability when a debt collector broke the law unintentionally. One requirement of the bona fide error defense, the Seventh wrote, is that the debt collector have reasonable procedures in place to avoid a violation. It concluded that AFNI had no such procedures, pointing out that AFNI an employee's own deposition shows it wasn't aware of the distinction between collecting its own debt and collecting on behalf of a client. In fact, the court wrote, "applying the bona fide error defense here would essentially reward a business's ignorance of the law." Thus, it upheld the trial court's summary judgment decision on both the FDCPA and the Wisconsin claim.

DiTommaso-Lubin has an active practice defending individuals who are victims of abusive, illegal or unfair practices by debt collectors, including violations of Illinois and other state consumer protection statutes as well as violations of the FDCPA. Based near Wheaton, Illinois, and Chicago, we have successfully represented consumers in Illinois and throughout the nation. To speak with us about a potential case against an abusive debt collector, you can

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Posted In: Billing Fraud , FDCPA (Fair Debt Collection Practices Act) , Seventh Circuit