Articles Posted in U.S. 7th Circuit Court of Appeals

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In 1999 the Sellers conveyed businesses to CT Acquisition Corp. The price was to be paid over time. The Sellers insisted on a surety bond (put up by Frontier Insurance) and personal guarantees by the principals of CT Acquisition. The Guarantors also promised to indemnify Frontier and promised to post collateral on Frontier’s demand. CT Acquisition did not pay, the Guarantors failed to keep their promise, and the Sellers turned to Frontier, which did not pay because it was in financial distress. Frontier demanded that the Guarantors post collateral. The district court read the agreement to require collateral only after Frontier’s obligation to the Sellers had been satisfied, or at least quantified. The suit was dismissed as unripe. Meanwhile the Sellers had sued Frontier and obtained judgment of $1.5 million. Frontier then filed another suit against the Guarantors. The district court concluded that, Frontier’s obligation having been quantified, the Guarantors must post collateral and, following remand, ordered the Guarantors to deposit with the Clerk $1,559,256.78, The Seventh Circuit affirmed, rejecting the Guarantors’ argument that they need not post collateral until Frontier has paid the Sellers. View "Frontier Ins. Co. v. Hitchcock" on Justia Law

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Belmont did not pay subcontractors and suppliers on some projects. Gad, its CEO, disappeared. West Bend Mutual paid more than $2 million to satisfy Belmont’s obligations and has a judgment against Belmont, Gad, and Gizynski, who signed checks for more than $100,000 on Belmont’s account at U.S. Bank, payable to Banco Popular. Gizynski told Banco to apply the funds to his outstanding loan secured by commercial real estate. Banco had a mortgage and an assignment of rents and knew that Belmont was among Gizynski’s tenants; it did not become suspicious and did not ask Belmont how the funds were to be applied. Illinois law requires banks named as payees to ask the drawer how funds are to be applied. The district judge directed the parties to present evidence about how Belmont would have replied to a query from the Bank. Gizynski testified that Gad, as CEO, would have told the Bank to do whatever Gizynski wanted. The judge found Gizynski not credible, but that West Bend, as plaintiff, had the burden of production and the risk of non-persuasion. The Seventh Circuit affirmed, rejecting an argument based on fiduciary duty, but reversed an order requiring Banco to pay West Bend’s legal fees View "W. Bend Mut. Ins. Co v. Belmont St. Corp." on Justia Law

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Plaintiff, an active genealogist and animal rights activist, claimed that her name had commercial value and that search engines generated revenue as a result of internet searches of her name. She specifically alleges that various features of Google’s search engine violate her right of publicity by using her name to trigger sponsored links, ads, and related searches to medications, including Levitra, Cialis, and Viagra, all of which are trademarks of nationally advertised oral treatments for male erectile dysfunction. The district court dismissed her suit alleging common law misappropriation and violation of the state right-of-privacy law, Wis. Stat. 995.50(2)(b). The Seventh Circuit affirmed, citing the public interest and incidental use exceptions. View "Stayart v. Google Inc." on Justia Law

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In 2006 a coal-mining company borrowed $7 million from Caterpillar secured by mining equipment. The company was also indebted to Peabody, for an earlier loan, and at Peabody’s request, transferred title to the same equipment, subject to Caterpillar’s security interest, to a Peabody affiliate. In 2008, Peoples Bank lent the mining company $1.8 million secured by the same equipment and filed a financing statement. Wanting priority, the bank negotiated a subordination agreement with Peabody. After the mining company defaulted, the bank obtained possession of the assets and told Caterpillar it would try to sell them for $2.5 million. Caterpillar did not object, but claimed that its security interest was senior. The bank sold the equipment for $2.5 million but retained $1.4 million and sent a check for $1.1 million to Caterpillar. Caterpillar neither cashed nor returned the check. The district court awarded Caterpillar $2.4 million plus prejudgment interest. The Seventh Circuit affirmed. The bank’s claim of priority derives from its dealings with Peabody. The bank did not obtain a copy of a security agreement for Peabody’s loan; a security interest is not enforceable unless the debtor has authenticated a security agreement that provides a description of the collateral. View "Caterpillar Fin. Servs. v. Peoples Nat'l Bank" on Justia Law

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In 1996 Beloit agreed to build high-speed paper-making machines for Indonesian paper companies. Two of the companies executed promissory notes in favor of Beloit reflecting a principal indebtedness of $43.8 million. The paper companies guaranteed the notes; Beloit assigned them to JPMorgan in exchange for construction financing. The machines were delivered in 1998 but did not run as specified. In 2000 the parties settled claims pertaining to the machines but preserved obligations under the notes. JPMorgan sued for nonpayment. The district court held that warranty-based claims were foreclosed by the settlement and that other defenses lacked merit; it awarded JPMorgan $53 million. After the appeal was filed, JPMorgan issued citations to discover assets. Although the companies raised an international conflict-of-law question, the district court ordered compliance with the citations. The Seventh Circuit affirmed. The settlement waived implied warranty defenses and counterclaims. The fraud defense is also mostly barred; to the extent it is not, the evidence was insufficient to survive summary judgment. The court also rejected defenses that the notes lacked consideration; that the notes were issued for a “special purpose” and were not intended to be repaid; and that JPMorgan is not a holder in due course. The discovery order was not appealable. View "JPMorgan Chase & Co., N.A. v. Asia Pulp & Paper Co., Ltd." on Justia Law

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OCV supplies equipment and licenses software for in-room hotel entertainment and sought a judgment of $641,959.54 against Roti, the owner of companies (Markwell, now defunct) that owned hotels to which OCV provided services. The district judge granted summary judgment, piercing the corporate veil, but rejecting a fraud claim. The Seventh Circuit reversed. While the Markwell companies were under-funded, OCV failed to treat the companies as separate businesses and proceed accordingly in the bankruptcy proceedings of one of the companies and made no effort to determine the solvency of the companies. View "On Command Video Corp. v. Roti" on Justia Law

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The class consists of chemical companies that purchase sulfuric acid as one of the inputs into their production of chemicals. The defendants own smelters that process nonferrous minerals such as nickel and copper. They also produce sulfuric acid and sell or sold it to the members of the class. The class was certified, but the suit, alleging violation of the Sherman Act, 15 U.S.C. 1, was dismissed on the merits. The district judge ruled that the case could not go to trial on a theory of per se liability. The plaintiffs could have gone to trial on a theory of liability under the rule of reason, but chose to appeal the dismissal. The Seventh Circuit affirmed, rejecting an argument based on how the defendants organized their operations. The court stated that: “ If there were no joint venture, there would still be no per se violation for there would still be the legitimate business reasons for the defendants to have cooperated.” View "In re Sulfuric Acid Antitrust Litigation" on Justia Law

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Turbo blowers are used in waste water treatment plants to maintain the oxygen dissolved in the water at a level needed by the aerobic bacteria that break down organic waste into carbon dioxide, nitrogen, and water. In 2006 Neuros began offering such blowers to facilities in North America. Two years later, KTurbo began marketing its blowers. In 2008 Neuros won a bid to supply blowers to a Utah plant. Lee, the chief executive officer of KTurbo, was dissatisfied, and slides and related tables that accused Neuros of fraud in its representations to the Utah purchaser. Lee made his presentation to engineering firms that advise treatment plants on which blowers to buy, but apparently failed to win any business away from Neuros. Lee also published his accusations on a website and sent them to the sales representatives. Neuros sued, charging violations of the Lanham Act, the Illinois Uniform Deceptive Trade Practices Act, and defamation. A bench trial resulted in a judgment in favor of Neuros on its defamation claim and an award of $60,000. The Seventh Circuit affirmed the award, but held that the other claims should not have been dismissed. View "Neuros Co., Ltd. v. KTurbo, Inc." on Justia Law

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In 2005, a Union Pacific train derailed in Oklahoma causing extensive damage to both the railroad and the train’s cargo. Kawasaki, K-Line, and Union Pacific sought damages, alleging that Plano’s steel injection molds were improperly packed, broke through their crate, and fell onto the track. The district court granted Plano summary judgment. The Seventh Circuit affirmed in part. Negligence claims were properly rejected, Plano had no indication that the parties with which it dealt would be unable to properly package and transport its steel molds from China to the United States, nor did Plano have any special knowledge of any unique danger the molds would pose during transit. Plano owed no special duty of care to the carriers. There were, however, unresolved questions of fact material to the determination of one contract claim, based on a bill of lading. It was unclear whether Plano or another arranged the molds’ shipment. View "Kawasaki Kisen Kaisha, Ltd. v. Plano Molding Co." on Justia Law

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EAR, a seller of manufacturing equipment, defrauded creditors by financing non-existent or grossly overvalued equipment and pledging equipment multiple times to different creditors. After the fraud was discovered, EAR filed for bankruptcy. As Chief Restructuring Officer, Brandt abandoned and auctioned some assets. Five equipment leases granted a secured interest in EAR’s equipment; by amendment, EAR agreed to pay down the leases ($4.6 million) and give Republic a blanket security interest in all its assets. Republic would forebear on its claims against EAR. The amendment had a typographical error, giving Republic a security interest in Republic’s own assets. Republic filed UCC financing statements claiming a blanket lien on EAR’s assets. After the auction, Republic claimed the largest share of the proceeds. The matter is being separately litigated. First Premier, EAR’s largest creditor, is concerned that Republic, is working with Brandt to enlarge Republic’s secured interests. After the auction, EAR filed an action against its auditors for accounting malpractice, then sought to avoid the $4.6 million transfer to Republic. The bankruptcy court approved a settlement to end the EAR-Republic adversary action, continue the other suit, divvy proceeds from those suits, and retroactively modify the Republic lien to correct the typo. First Premier objected. The district court affirmed. The Seventh Circuit affirmed. First Premier was not prejudiced by the settlement. View "First Premier Capital, LLC v. Republic Bank of Chicago" on Justia Law