7th Circuit Bankruptcy Law News - U.S. Seventh Circuit
U.S. Seventh Circuit - The FindLaw 7th Circuit Court of Appeals Opinion Summaries Blog

Recent Bankruptcy Law Decisions

Anna Nicole Smith. Long has she been gone, but never will she be forgotten, especially not to those of us who have to deal with her legal legacy: Stern v. Marshall. The Supreme Court held that non-Article III bankruptcy courts could not enter final judgment on unresolved state law counterclaims. Now, the Court will decide whether these Stern claims can be waived, implicitly or explicitly.

And if non-Article III courts' jurisdiction doesn't interest you, we'd bet that the jurisdiction of an Article III court to review the sufficiency of a government agency's statutorily mandated duty sure will! The EEOC claims that its mandated settlement efforts are beyond the scrutiny of the courts, and the Seventh Circuit agreed. Will SCOTUS?

Can an Illinois 'Citation' Be a Lien on a Bank Account?

Does Illinois law treat a citation served on a judgment debtor as a lien on the value of the debtor's bank account?

Absolutely, according to the Seventh Circuit Court of Appeals.

Court Threatens Bankruptcy Pro Se Litigant with Sanctions

Have you ever asked yourself: “How many frivolous appeals does it take before the Seventh Circuit Court of Appeals threatens to sanction a pro se litigant?” The answer is 13.

This week, the Seventh Circuit rejected another appeal from Scott Wallis, who is contesting USA Baby, Inc.’s liquidation, and warned that Wallis would be sanctioned if he continued to waste the courts’ time with frivolous appeals.

Creditor Loses Bankruptcy Settlement Challenge

The Seventh Circuit Court of Appeals ruled last week that a bankruptcy court did not err in approving a bankruptcy settlement that allotted a portion of the proceeds from a property sale to pay the insolvent company’s bankruptcy attorneys.

Holly Marine Towing, Inc. was a Chicago company that owned and operated a tug boat service on Lake Michigan. The company filed for Chapter 11 bankruptcy on January 8, 2007, and the bankruptcy court converted the case to a Chapter 7 liquidation bankruptcy the following year. A trustee was appointed to manage the estate’s assets and pay off creditors.

Relational, LLC v. Hodges, 09-3625

Presumption of service in plaintiff's suit against a guarantor

Relational, LLC v. Hodges, 09-3625, concerned a challenge to the district court's denial of defendant's motion to vacate a default judgment entered in favor of the plaintiff, in plaintiff's suit against a guarantor for failing to pay $750,000 of debt that his company owed to plaintiff. 

 

Redmond v. Fifth Third Bank, 08-4288

Bankruptcy court's denial of debtor's motion to reopen his case in a bank's foreclosure suit affirmed

Redmond v. Fifth Third Bank, 08-4288, concerned a challenge to the district court's affirmance of a bankruptcy court's denial of a debtor's motion to reopen his bankruptcy case, claiming that a bank's foreclosure suit was in violation of the bankruptcy court's orders.

Costello v. Grundon, 08-3961

Litigation trustee's suit against a bankrupt company's former high level employees to enforce certain promissory notes

Costello v. Grundon, 08-3961, concerned a challenge to the district court's grant of trustee's motion for summary judgment, in a litigation trustee's suit against former high-level employees of a bankrupt company ("borrowers") to enforce certain promissory notes.

Xodus v. Wackenhut Corp., 09-3082, involved a plaintiff's suit against a security firm, claiming that it violated Title VII when it did not hire him as a security guard because plaintiff would not cut his dreadlocks.  In affirming the district court's judgment that defendant did not engage in religious discrimination when it refused to hire plaintiff on account of his dreadlocked hairstyle, the court held that the district court's decision to credit the interviewing manager's testimony that plaintiff never informed him that religious belief required him to wear dreadlocks is both plausible from the evidence and sufficiently explained in the opinion.  Also, plaintiff waived his claim that the district court erred by preventing him from testifying about his EEOC intake questionnaire.  Lastly, the court held that plaintiff's claims that the district court erred when it granted summary judgment to defendant on the issue of whether he mitigated his damages and whether he was entitled to punitive damages are moot.

 

Spoerle v. Kraft Foods Global, Inc., 09-2691, concerned an employees' action against Kraft Foods, challenging a tradeoff agreement struck in collective bargaining agreement between union and management that the time spent donning and doffing safety gear is not compensable.  In affirming district court's rejection of defendant's argument that section 203(o) preempts Wisconsin's law and entry of judgment in plaintiffs' favor as a matter of Wisconsin law rather than federal law, the court held that the district court did not err in concluding that plaintiffs are entitled to be paid for all time required by Wisconsin law.

Purvis v. Oest, 09-1098, concerned a challenge to the district court's denial of defendants' motion for summary judgment in a former high school teacher's suit against a school district's superintendent and others claiming deprivation of due process and false arrest, arising from a prosecution for allegedly having a sexual relationship with with a 15-year-old student, of which she was acquitted.  In reversing the judgment, the court held that, although a genuine issue of material fact exists as to whether the school's investigation was biased and deprived plaintiff of due process, the superintendent, dean and the principal are entitled to qualified immunity, and that the police chief had probable cause to arrest plaintiff.

Moss v. Martin, 09-1567, concerned plaintiff's 42 U.S.C. section 1983 suit against several state officials, claiming that he was fired as the Chief of the Highway Sign Shop of the Illinois Department of Transportation in order to make room for an employee chosen by the administration of then-Governor Rod Blagojevich.  In affirming district court's grant of defendants' motion for summary judgment, the court held that, although the decision to fire plaintiff probably fell afoul of the Rutan principal (rule banning politically-based firings)l, defendants were entitled to qualified immunity.

Marshall Joint Sch. Dist. No. 2 v. C.D., 09-1319, concerned a challenge to the district court's affirmance of the ALJ's conclusion that a school district erred in finding that plaintiff, a fifth grader diagnosed with a rare genetic disease, was no longer eligible for special education.  In reversing, the court remanded the matter as the ALJ's finding that plaintiff's educational performance was adversely affected by Ehlers-Danlos Syndrome (EDS) was undermined by a misapplication of the governing standard and was not supported by substantial evidence in the record.  Also, the ALJ impermissibly discounted the testimony of a witness, and there is no substantial evidence in the record to support the finding that plaintiff needed special education because of his health condition.

In Re: Meyers, 09-3478, concerned a challenge to the district court's affirmance of a bankruptcy court's use of a mechanical system known as the "pro rata by days" method to calculate the proportion of debtor's tax refunds that belonged to the pre-petition asset pool, in Chapter 7 proceedings.  In affirming, the court held that, although the pro rata by days method may not be appropriate for all cases, the court properly applied the method as the trustee has met her burden in this case.

Fusion Capital Find II, LLC. v. Ham, 09-3723,  concerned a challenge to the district court's judgment awarding defendant about $1.2 million in legal fees after ruling in favor of defendant and holding an insolvent corporation's board of directors personally liable, in the insolvent corporation's suit against defendant-corporation for tortious interference with its merger agreement.  In reversing, the court held that, under Nev. Rev. Stat. section 78.747, there isn't any fraud as plaintiff's thin capitalization was both the reason why the deal had been proposed and the dominant feature in the deal's structure.  Furthermore, when plaintiff signed a contract promising to reimburse defendant's legal expenses if litigation ensued, defendant knew beyond doubt that plaintiff would be unable to keep that promise unless the merger closed.  Thus, the court is not aware of any statute or decision holding that investors in a thinly capitalized corporation are personally liable for its debts to a contracting partner when that partner, with knowledge of the corporation's insolvency, signs without getting a guaranty from the investors.

Alliance 3PL Corp. v. New Prime, Inc., 09-3489, concerned a plaintiff's breach of contract suit against a shipping carrier, for allegedly violating a back-solicitation clause by carrying bulk goods for one of plaintiff's former customers after plaintiff's contract with the customer ended.  In reversing the district court's judgment in favor of the plaintiff and denial of defendant's motions under Fed. R. Civ. P. 50 and 59, the court held that the district court should have granted defendant's motion under Rule 50 for judgment as a matter of law as the fact remains that defendant's knowledge of the customer's business was acquired independent of plaintiff.  Further, under plaintiff's reading of "traffic," plaintiff loses because the back-solicitation clause covers only traffic that defendant "first knew" about as a result of doing business with plaintiff.

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US v. Olmeda-Garcia, 09-3042, In a prosecution of defendant for illegal re-entry into the United States, district court's imposition of a 64-month sentence is affirmed as the only potential error defendant identified is the district court's silence with respect to a possible disparity that could arise between defendant's sentence and those available to defendants in other districts, and here, defendant did not adequately develop this argument and the district court was entitled to hand down an otherwise procedurally and substantively sound sentence without discussing the point.

US v. Diaz-Gaudarama, 09-4048, concerned a challenge to the district court's refusal to credit defendant with a two-point reduction for acceptance of responsibility in a prosecution of defendant for conspiring to distribute methamphetamine, cocaine, and marijuana.  In affirming the denial, the court held that defendant is not entitled to a reduction in his advisory guideline range for acceptance of responsibility, given defendant's attempt to avoid criminal responsibility for his actions, the absence of statements by defendant reflecting remorse for his crime, and the last-minute nature of his attempt to plead guilty.

Mosley v. City of Chicago, 09-3598, concerned a challenge to the district court's grant of summary judgment in favor of the defendants in plaintiff's section 1983 suit against the City of Chicago and several of its police officers, arising from his arrest and prosecution for murder, of which he was acquitted at trial after approximately five years in jail.  In affirming the judgment, the court held that there is no evidence in the record that the officers withheld any materially favorable piece of evidence, and even assuming that a Brady violation could occur when a trial ends in acquittal, this claim cannot rise to the level described in Bielanski v. County of Kane, 550 F.3d 632 (7th Cir. 2008).  The court also held that the district court did not err in concluding that the defendants had probable cause to press forward with the prosecution and therefore plaintiff could not maintain a claim for malicious prosecution, nor in granting summary judgment on plaintiff's civil conspiracy claim.

Louis & Karen Metro Family, LLC v. Lawrence Conservancy Dist., 09-2418, concerned a plaintiff's breach of contract suit against a city and a conservancy district, claiming that the defendants breached their option contract to acquire land.  In affirming in part, the court held that the district court correctly concluded that a breach occurred as the defendants' failure to allow the plaintiffs to exercise the option within 18 months of the decision to cancel the flood control project was a breach of the contract.  Court also held that the district court did not abuse its discretion in deciding to invoke the equitable remedy of reformation.  However, the district court's order of reformation of an option contract to extend the date by which the option could be exercised in denying plaintiffs' request for money damages is vacated and remanded as the closest that one can come to making plaintiff whole for the shortfall in compensation is to determine how much it lost at the moment that the option became impossible to exercise.

Kovacs v. US, 09-3328, concerned a challenge to the district court's order affirming the bankruptcy court's dismissal of plaintiff's claim for lack of jurisdiction in a taxpayer's suit against the United States seeking to recover damages resulting from the Internal Revenue Service (IRS), claiming violation of the discharge injunction provided by section 524 of the Bankruptcy Code, arising from an Offer and Compromise (OIC) that she entered into with the IRS to resolve her tax liabilities for tax years 1990 through 1995.  In affirming in part, the court held that, due to the unequivocal exclusivity provision of 26 U.S.C. section 7433, the district court did not err in determining that plaintiff must comply with the jurisdictional provisions of section 7433 prior to recovery for a willful violation of the discharge injunction.  The court also held that the district court did not err in holding that plaintiff's cause of action with respect to IRS's July 8, 2002 collection effort is time-barred. However, the court reversed in part and remanded as, the district court erred in holding that plaintiff's claim with respect to IRS's September 8, 2003 and September 18, 2003 violations was time-barred.

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