Seventh Circuit

Seventh Circuit Rules Class Action Objectors Cannot Collect Damages for Privacy Breach Under FCRA or State Consumer Protection Law

April 26, 2009 | Peter S. Lubin and Patrick Austermuehle

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.”

Auto Dealership Entitled to New Trial Over Compensation Under Quantum Meruit, Seventh Circuit Decides

April 1, 2009 | Peter S. Lubin and Patrick Austermuehle

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.

Summary Judgment Stands for Consumer Class Alleging Unfair Debt Collection Practices, Seventh Circuit Rules

March 15, 2009 | Peter S. Lubin and Patrick Austermuehle

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.

Trademark Dispute Between Naperville Small Business and National Corporation Can Proceed

October 16, 2008 | Peter S. Lubin and Patrick Austermuehle

In a business trademark dispute, the Seventh Circuit has ruled that large auto parts retailer AutoZone may proceed with its trademark infringement lawsuit against a two-store automotive services business in Naperville and Wheaton, Illinois, called Oil Zone and Wash Zone. AutoZone, Inc. v. Michael Strick, No. 07-2136 (7th. Cir. Sept. 11, 2008).

AutoZone sells auto parts and products, and has been well-known in the Chicago area since the early 1990s, according to the opinion. In that decade, defendant Michael Strick opened his Oil Zone stores outside Chicago, in Wheaton and Naperville. These stores sold automotive services such as oil changes, not parts or products; the Naperville location also offered car washes under the name “Wash Zone.”

AutoZone learned of Strick’s businesses in 1998, but did not contact him until sending a letter in February of 2003. It filed a lawsuit against Strick and his businesses near the end of that year, alleging service mark, trademark and trade name infringement and trademark dilution under the federal Lanham Act, federal unfair competition law, the Illinois Trademark Registration and Protection Act and Illinois common law. Both sides sought summary judgment, which was granted to Strick only, on his claim that there was no reasonable likelihood of confusion between his trademark and AutoZone’s. Strick’s defense of laches — that AutoZone had waited too long to sue — was not addressed. AutoZone appealed on the likelihood of confusion issue.

Seventh Circuit Finds No Duty to Defend For Liability Insurer When Liability Based on Intentional Wrongs

May 27, 2008 | Peter S. Lubin and Patrick Austermuehle

In an insurance contract dispute, the Seventh U.S. Circuit Court of Appeals ruled April 23 that a liability insurer has no duty to defend a village from litigation alleging intentional misconduct, but not negligence. St. Paul Fire and Marine Insurance Company v. Village of Franklin Park, No. 06-2924 (7th Cir. 4/23/2008) is a contract dispute between an insurer and an Illinois township accused in separate litigation of severely underfunding its mandatory firefighters’ pension fund.

Under Illinois state law, municipalities must establish and administer pension funds for their firefighters. Firefighters in Franklin Park sued under that law, alleging that the village had intentionally underfunded their pension fund for more than 30 years. After the suit was filed in state court in January of 2002, the village asked its liability insurer, St. Paul, to defend it under a policy that covered disputes over employee benefits plans. The insurer declined, and the village disputed this, but did not sue. In late 2004, St. Paul filed in federal court, seeking a declaratory judgment that it had no duty to defend the village. In March of 2006, the district court granted that judgment, ruling that St. Paul’s contract created a duty to defend against negligence, not the intentional wrongdoing alleged by the firefighters. The village appealed both the judgment and the denial of a motion to reconsider. The Seventh Circuit affirmed.

In its opinion, the three-judge panel agreed with St. Paul that the firefighters’ allegations were not a “loss” under the meaning of the policy, pointing to caselaw that distinguishes between loss and money that was illegally or unethically withheld from its rightful owner.

Midwest Insurers Have Duty to Defend in Junk Fax Class-Action Suits

May 25, 2008 | Peter S. Lubin and Patrick Austermuehle

The Illinois Supreme Court handed a victory to plaintiffs throughout Illinois with its 2006 ruling in an insurance dispute over whether insurers must cover the costs of a junk fax class action lawsuit for an insured covered for an “advertising injury.” In Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 2006 Ill. LEXIS 1655, the state Supreme Court ruled that business insurers have a duty to defend “junk fax” class action lawsuits.

The underlying dispute in the Illinois Supreme Court case started when private investigator Ernie Rizzo filed a proposed class action lawsuit against Swiderski Electronics for sending him “junk faxes.” Unsolicited advertisements sent via fax violate both the federal Telephone Consumer Protection Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. Swiderski had an insurance policy from Valley Forge Insurance Company, which insured Swiderski against a personal or advertising injury that arises out of “Oral or written publication, in any manner, of material that violates a person’s right of privacy[.]” The insurer claimed that because the faxes had not revealed Rizzo’s own personal information, they did not invade his privacy and thus were not covered. They also claimed that sending information via fax does not constitute publication.

The insurer asked a trial court for a declaratory judgment stating it was not obligated to cover Swiderski; all parties filed cross-motions seeking summary judgment. The trial court ruled in favor of Swiderski, as did the appellate court and, eventually, the Illinois Supreme Court. That court rejected Valley Forge’s arguments, rejecting the claim that faxing is not “publication,” using the plain meaning of the word. It also ruled that privacy under the federal TCPA and caselaw includes the right to be left alone:

Seventh Rules Credit Must Be Firm, But Not Valuable Under FCRA

May 24, 2008 | Peter S. Lubin and Patrick Austermuehle

The Seventh U.S. Circuit Court of Appeals recently issued an opinion limiting class-action lawsuits regarding “firm offers of credit” under the federal Fair Credit Reporting Act. In Murray v. New Cingular Wireless Services, 2008 WL 1701839 (7th Cir. April 16, 2008), the Seventh Circuit also limited the scope of its 2004 decision in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004). In that decision, the court said that when companies offer “a token line of credit” along with consumer goods, that credit offer must have value to the customer.

Among the issues addressed by the court are:

* Under Cole, an offer of credit entangled with an offer of merchandise must be valuable. However, Cole does not apply to “pure offers of credit” not entangled with another offer. The FCRA requires only that an offer of credit be firm, not that it be valuable to most or all of its recipients.

Contract Counterclaim Fails and Sanctions Upheld, Seventh Circuit Rules

May 23, 2008 | Peter S. Lubin and Patrick Austermuehle

The Seventh U.S. Circuit Court of Appeals issued a ruling May 13 in United Stars Industries, Inc. v. Plastech Engineered Products, Inc., 07-2919 (7th Cir. 2008), a business contract dispute in which Plastech alleged that its tubing supplier, United Stars, overcharged it by about $1.6 million. The case is also notable because the appellate court upheld $30,000 in sanctions against the law firm Jones Day for “frivolous claims.”

The underlying dispute started when United Stars notified Plastech, its customer, that it had been charging Plastech surcharges for the cost of raw materials, even though about 9% of those materials were lost during processing. Plastech contends that it did not agree to pay the full amount of those surcharges; thus, it believed United Stars owed it about $900,000, and Plastech refused to pay another $700,000 bill, for a total of $1.6 million in dispute. Plastech stopped paying United Stars, even after reaching a purported compromise in 2005, then found another vendor. In the ensuing lawsuit, in U.S. District Court for the Western District of Wisconsin, the judge awarded $1.3 million to United Stars, sending Plastech into bankruptcy.

On appeal, Plastech contended that the trial judge erred in deciding that the companies reached a compromise in 2005. However, the Seventh said, Plastech’s claim fails regardless of whether there was a compromise, because it did not present “a scrap of evidence” to support its interpretation of the companies’ contract. Furthermore, the language of the contract itself favored United Stars.