Justia Contracts Opinion SummariesArticles Posted in U.S. Court of Appeals for the Seventh Circuit
Aker v. Collection Associates, LTD.
Medical service providers referred plaintiffs’ debts to defendants, who sent letters, demanding payment of the principal plus 5% interest. Plaintiffs claimed that this violated 15 U.S.C. 1692g(a)(1), the Fair Debt Collection Practices Act, which states that debt collectors must specify the amount of the debt, and that Wisconsin law provides for interest (absent a contractual provision) only if a debt has been reduced to judgment, and any pre-judgment request for interest is forbidden. The Seventh Circuit affirmed summary judgment for the defendants. Wis. Stat. 426.104(4)(b), the “safe harbor” for people who act in ways approved by the Administrator of Wisconsin’s Department of Financial Institutions applies because the defendants sent the Administrator a letter asking whether they were entitled to add 5% interest to debts for the provision of medical services. The Administrator’s silence for 60 days resulted in deemed approval. The defendants were entitled to demand payment of both principal and interest, so the letters did not violate 15 U.S.C. 1692e(2)(A), which prohibits false representations about the character, amount, or legal status of a debt. The federal Act otherwise allows debt collectors to add interest when permitted by law. Plaintiffs’ debts arose under state contract law and are subject to the safe harbor provision. View "Aker v. Collection Associates, LTD." on Justia Law
Shiner v. Turnoy
Turnoy sold insurance to Shiner’s in‐laws for decades. After Shiner, a Chicago lawyer, demanded that Turnoy split commissions on their new policies, Turnoy sent him a check for $149,000. Rejecting $149,000 as too little, Shiner sued for breach of contract, then brought another suit, alleging tax fraud, 26 U.S.C. 7434, by reporting to the IRS the $149,000 as income to Shiner; Shiner had not cashed the check. The judge ordered Turnoy to pay Shiner damages of $16,000 for fraud. The Seventh Circuit reversed, noting that the state court rejected Shiner’s breach of contract claim before the district court’s decision. Turnoy had placed a restrictive endorsement on the back of the check, stating that by cashing the check Shiner accepted $149,000 as full payment. U.S. Treasury regulations provide that a check received but not cashed counts as income for tax purposes only if “credited or set apart to a person without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made,” but Shiner neither asked for a new check nor otherwise communicated rejection of the check. Shiner’s inaction gave Turnoy a solid basis for believing that Shiner had accepted the check, so Turnoy’s filing of Form 1099 was not “willfully … fraudulent.” View "Shiner v. Turnoy" on Justia Law
Estate of Burford v. Accounting Practice Sales, Inc
APS is a broker for the purchase and sale of accounting practices, working through brokers who are treated as independent contractors and are assigned exclusive sales territories. Burford became an APS broker in 2003, under a contract with a “minimum yearly sales volume” requirement. Burford did not meet this requirement for four consecutive years. In 2010, APS’s owner, Holmes spoke with Burford about his poor performance. Burford failed to meet his minimum yearly sales volume requirements again in 2010 and 2011. In 2012, APS terminated Burford’s contract and reassigned his sales territory. Burford filed suit. The district court granted summary judgment in favor of the defendants, reasoning that Burford’s contract was terminable at will. On remand, a jury found for APS. The Seventh Circuit affirmed, rejecting arguments that the trial court erred by supposedly allowing APS to change the legal theory for its defense in violation of the “mend‐the‐hold” doctrine in Illinois law and abused its discretion by denying admission of an exhibit. The court also rejected an argument that the verdict was contrary to the weight of the evidence on whether APS waived its right to enforce the minimum sales requirement. View "Estate of Burford v. Accounting Practice Sales, Inc" on Justia Law
Cafferty, Clobes, Meriwether & Sprengel, LLP v. XO Communications Services, LLC
The law firm’s contract with XO Communications provided that the contract would be automatically renewed “for a similar term and at the same rates.” A customer who did not want to renew was required to notify XO at least 30 days before the expiration date in the contract. The contract provided that if the customer terminated the contract after the deadline it would have to pay a termination fee. XO’s monthly invoices contain a prominent reminder of the automatic renewal. After its third renewal, the firm wanted out of the contract because it was moving to a location not serviced by XO. The firm, not wanting to pay the $9,000 termination fee, filed a purported class action, alleging that XO’s monthly reminders should have included the date of the automatic renewal, or that XO should have otherwise notified the plaintiff of the renewal date. The Seventh Circuit affirmed dismissal, noting that: "It’s not as if the plaintiff were some hapless consumer bamboozled by a huge company…. Had this substantial enterprise kept track of the date of its contract with XO (more precisely the date of its latest renewal of the contract), it would not have incurred the modest termination fee." View "Cafferty, Clobes, Meriwether & Sprengel, LLP v. XO Communications Services, LLC" on Justia Law
Evergreen Square of Cudahy v. Wisconsin Housing & Economic Development Authority
The property owners, participants in the “Section 8” federal rental assistance program (42 U.S.C. 1437f(a)), sued the Wisconsin Housing and Economic Development Authority for allegedly breaching the contracts that governed payments to the owners under the program, by failing to approve automatic rent increases for certain years, by requiring the owners to submit comparability studies in order to receive increases, and by arbitrarily reducing the increases for non-turnover units by one percent. Because Wisconsin Housing receives all of its Section 8 funding from the U.S. Department of Housing and Urban Development (HUD), the Authority filed a third-party breach of contract claim against HUD. The district court granted summary judgment in favor of Wisconsin Housing and dismissed the claims against HUD as moot. The Seventh Circuit affirmed, noting that the owners’ Section 8 contracts were renewed after the challenged requirements became part of the program. “The doctrine of disproportionate forfeiture simply does not apply,” and Wisconsin Housing did not breach any contracts by requiring rent comparability studies in certain circumstances or by applying a one percent reduction for non-turnover units. View "Evergreen Square of Cudahy v. Wisconsin Housing & Economic Development Authority" on Justia Law
Christofalos v. Grcic
In the first case in “a long‐running and acrimonious business dispute,” Lardas claimed fraudulent inducement and breach of contract, arising from a settlement agreement, which Lardas argued was intended to deprive her nephew (Christofalos) of his ownership interest in Wauconda Shopping Center (WSC). The Seventh Circuit affirmed dismissal of Lardas’s case without prejudice, finding that Lardas lacked standing. Lardas had transferred her ownership in a predecessor entity to Christofalos. The second case involves Christofalos’s bankruptcy, in which the court authorized the sale of his interest in WSC (11 U.S.C. 363(b)). The Seventh Circuit dismissed an appeal as moot because the sale has been consummated and third parties have acted in reliance. Christofalos also challenged the denial of a discharge, based on a bankruptcy court finding under 11 U.S.C. 727(a)(4)(A), which authorizes denial of discharge where the debtor has “knowingly and fraudulently … made a false oath or account.” The Seventh Circuit affirmed, noting that Christofalos made a “host of false statements and omissions.” The court also affirmed denial of Christofalos’s “Motion to Reopen Case and Assign a Receiver” in Lardas’s case. View "Christofalos v. Grcic" on Justia Law
Frye v. Auto-Owners Insurance Co.
Frye was seriously injured in an accident while driving for his job. Frye accepted $100,000, the per-person limit, from the other driver’s insurer, assigning it to his lawyer and to his employer’s insurer, Auto-Owners, from which Frye had received $692,895.79 in workers’-compensation benefits. Frye’s injuries were also covered by commercial automobile and commercial umbrella policies, issued by Auto-Owners to Frye’s employer. The automobile policy required Auto-Owners to pay any compensatory damages Frye was legally entitled to recover for bodily injuries caused by an underinsured motorist. The umbrella policy afforded follow-on coverage. Auto-Owners agreed to pay Frye $1,282,314.21: $900,000 under the automobile policy ($1 million in total coverage, less $100,000 from the other insurer); and $382,314.21 under the umbrella policy ($1 million in UIM coverage, less $617,685.79 in net workers’-compensation payments). Frye argued that Indiana law required Auto-Owners to provide through its umbrella policy UIM coverage in an amount equal to the policy’s general liability limit ($5 million) and that the setoff for workers’-compensation payments was impermissible under the contract and Indiana public policy. The district court awarded AutoOwners summary judgment. The Seventh Circuit reversed. While Indiana law allowed Auto-Owners to abstain from providing UIM coverage in the umbrella policy, once it provided such coverage it was required under Section 27-7-5-2(a) to provide that coverage in limits equal to the policy’s general liability limit: $5 million. It cannot decrease that cap based on workers’ compensation payments. View "Frye v. Auto-Owners Insurance Co." on Justia Law
Wilson v. Career Education Corp.
Wilson was an admissions representative, recruiting students to CEC’s culinary arts college. Wilson earned a bonus for each student that he recruited above a threshold who either completed a full course or a year of study. If a representative was terminated, he was entitled only to bonuses already earned, not including students “in the pipeline.” CEC reserved the right to “terminate or amend” the contract at any time, for any reason, in its sole discretion. The Education Department released regulations, to become effective in July 2011, prohibiting institutions participating in Title IV student financial aid programs from providing bonuses based on securing enrollment. CEC decided to pay bonuses that were earned as of February 28, 2011, depriving Wilson of bonuses that were in the pipeline. CEC raised the base salary by at least the total of 3% plus 75% of each representative’s previous two years’ bonuses. Wilson sued. The Seventh Circuit remanded, holding that Wilson must prove that CEC exercised its discretion in a manner contrary to the parties' reasonable expectations. On remand, the district court rejected an argument that cost savings, not compliance with the regulations, drove CEC’s decision. There were no cost savings to CEC. The Seventh Circuit affirmed. Even accepting Wilson’s characterization, the evidence is insufficient to allow a jury to reasonably conclude that CEC breached the implied covenant of good faith and fair dealing. View "Wilson v. Career Education Corp." on Justia Law
Midwest Operating Engineers Welfare Fund v. Cleveland Quarry
RiverStone had collective bargaining agreements (CBAs) with the union, requiring RiverStone to contribute a specified dollar amount to specified welfare and pension funds “for each hour for which an employee receives wages under the terms of this Agreement.” RiverStone’s employees voted to decertify the union. RiverStone stopped contributing to the funds, which filed suit under 29 U.S.C. 1145, the Multiemployer Pension Plan Amendments Act of 1980, seeking payment of the contributions that would have been due under the last CBA until its 2015 expiration. The Seventh Circuit affirmed summary judgment in favor of the funds. The CBA made the company’s obligations to the fund survive decertification, and a union is not the only party with standing to enforce an employer’s obligation to contribute to an employee welfare plan. Once multiemployer plans promise benefits to employees, they must pay even if the contributions they expected do not materialize, so “if some employers do not pay, others must make up the difference.” Nothing in the Employee Retirement Income Security Act (ERISA) makes the obligation to contribute depend on the existence of a valid CBA. The CBA became unenforceable by the union when the union was decertified, but the agreement did not cease to exist until its term ended. View "Midwest Operating Engineers Welfare Fund v. Cleveland Quarry" on Justia Law
Texas Ujoints LLC v. Dana Holding Corp.
Dana had a dealer agreement in Texas with AISCO. Unbeknownst to Dana, AISCO sold off most of its assets to newly-formed DanMar, which transferred the assets to UJoints. The name “UJoints” had been a trade name used by AISCO. Under Texas Business and Commerce Coe 57.154(a)(4), “a supplier may not terminate a dealer agreement without good cause.” Good cause exists “if there has been a sale or other closeout of a substantial part of the dealer’s assets related to the business.” Dana terminated the agreement, preventing UJoints from claiming to have been authorized to step into AISCO’s shoes and become a Dana dealer in Texas. The Seventh Circuit affirmed summary judgment in favor of Dana, finding that the transfers gave Dana good cause to terminate its dealer agreement with AISCO. The court rejected an argument that Dana entered into a “dealer agreement,” with the “new, unknown entity the identity of which the owners had concealed from Dana for a significant time.” It was natural for Dana to continue selling, for a time, to its dealer’s, AISCO’s, successor—UJoints. Those sales did not make UJoints a party to a dealer agreement. View "Texas Ujoints LLC v. Dana Holding Corp." on Justia Law