Articles Posted in Appellate Court

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Am. Commercial Lines, LLC v. Lubrizol Corp.

U.S. Court of Appeals for the 7th Circuit
Docket No. 15-3242  Opinion: March 25, 2016

In this case about manufacturer liability in the setting of a commercial distribution relationship, a customer attempts to hold the manufacturer of a product liable for the distributor’s failures. The customer’s claims are based on the so-called “special relationship” between the distributor and manufacturer, as well as the customer’s status as an alleged intended beneficiary of the distribution arrangement. The 7th Circuit, however, was having none of it.

Factual Background

American Commercial Lines (ACL) manufactures and operates tow boats and barges that operate on US inland waterways. Lubrizol manufactures industrial lubricants and additives. VCS Chemical Corp. (VCS) distributed Lubrizol products to customers such as ACL.

Lubrizol and VCS jointly persuaded ACL to buy product through VCS. But before delivery began Lubrizol terminated VCS as a distributor – without informing ACL. VCS did not inform ACL either. Instead of telling ACL that it could no longer provide the Lubrizol product, VCS supplied a substitute. When ACL figured out the switch it sued both VCS and Lubrizol, arguing that the two must have enjoyed a “special relationship” because of their apparent cooperating in selling ACL on the idea of buying the Lubrizol product.

Procedural History

In its lawsuit in the District Court, ACL claimed that it had been duped by VCS who was acting on behalf of Lubrizol, and that as a result both companies were liable for the switch. ACL settled. Lubrizol brought a Motion to Dismiss and the District Court dismissed it. ACL appealed the dismissal of Lubrizol to the 7th Circuit.

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Jepson v. Bank of New York Mellon
Court of Appeals for the 7th Circuit  Docket No. 14-2459

Opinion Date: March 22, 2016

This case is a testament to the subprime crisis and illustrates how complex and devastating mortgage securitization and pooling was to ordinary homeowners; middle-class people faced with sudden and insurmountable mortgage debt. Sadly, this decision also illustrates just how hard it is to stand up to the holders of pooled mortgage loans.

The underlying facts of the case are so common that the Plaintiff could have been anyone; while the tortuous path of the case up to the 7th Circuit – years after the underlying foreclosure and bankruptcy – left this Plaintiff financially devastated.

Factual Background

Patricia Jepson (Jepson) executed a Note and Mortgage issued by “America’s Wholesale Lender” – a d/b/a of notorious subprime mortgagee Countrywide – and Mortgage Electronics Registration Systems (MERS), its nominee. The Note was endorsed by Countrywide d/b/a America’s Wholesale Lender and transferred to CWABS, a residential mortgage trust operating under New York law that pooled loans and sells mortgage-backed securities sold on Wall Street. CWABS is governed by a Pooling and Service Agreement (PSA). Bank of New York Mellon (BNYM) was the Trustee for CWABS. MERS therefore assigned Jepson’s mortgage to BNYM.

When Jepson eventually defaulted on her mortgage – a common scenario in such subprime traps – BNYM filed a Foreclosure complaint in State Court. Jepson inturn filed Chapter 7 Bankruptcy. BNYM predictably moved to lift the Automatic Stay. But instead of lying down and letting the Bank proceed, Jepson filed an Adversary Complaint and Objection seeking a declaration that BNYM had no interest in her mortgage because, inter alia, the note did not proceed through a complete chain of intervening endorsements; was endorsed after the closing date in the PSA; and that America Wholesale Lender was a fictitious entity rendering the Note was void under Illinois law. Continue reading

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Continental Casualty Company v. Symons, et al.
7th Circuit Court of Appeals Citation: 14-2665, 14-2671 & 15-106

Decided: March 22, 2016

This fraudulent transfer case pits 2 insurance company’s – as well as the controlling family of the seller and their related businesses – against one another. despite some fancy footwork on the part of the sellers, the Court saw through the ruse to the heart of the deceit. The upshot: if it quacks like a duck then it probably is. To nobody’s surprise, fraudulent transfers were found and liability followed close behind.

Factual Background

IGF Insurance Company owed Continental Casualty Company more than $25 million for a crop-insurance business it bought in 1998. In 2002 IGF resold the business to Acceptance Insurance Company for approximately $40 million. Continental alleged in the District Court that IGF’s controlling family — Gordon, Alan, and Doug Symons — structured the sale so that most of the purchase price was siphoned into the coffers of other Symons-controlled companies rendering IGF insolvent. Specifically, Continental claimed that $24 million of the $40 million purchase price went to 3 Symons-controlled companies—Goran Capital, Inc.; Symons International Group, Inc.; and Granite Reinsurance Co.—for sham noncompetition agreements and a superfluous and over-priced reinsurance treaty. Continental, still unpaid, sued for breach of contract and fraudulent transfer.

In 1998 IGF bought Continental’s crop-insurance business at a price to be determined at either side’s option by the exercise of a put or call option. In 2001 Continental exercised its put option; under the contractual formula, IGF owed Continental $25.4 million. At that same time, IGF sold its business to Acceptance for $40 million. The Symons, who controlled IGF, structured the purchase price: $16.5 million to IGF; $9 million to IGF’s parent companies Symons International and Goran in exchange for noncompetition agreements; and $15 million to Granite, an affiliated Symons-controlled company, for a reinsurance treaty. Continental, still unpaid, sued for breach of contract and fraudulent transfer.

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In re: Great Lakes Quick Lube, LP
7th Circuit Federal Court of Appeals
No. 15-2093 Decided Mar. 11, 2016

In this case the value of unexpired commercial leases was put to the test. When a popular auto-repair/oil-change franchise went into Chapter 11, its unsecured creditors sought to recoup the value of 2 unexpired leases it relinquished just before filing. The 7th Circuit analyzed the issue under 2 provisions of the Bankruptcy Code and ultimately decided that the terminated leases were an asset of the Estate and that letting them go was tantamount to an improper pre-filing transfer.

Factual Background

Great Lakes Quick Lube LP (Great Lakes) owned oil change and automotive repair stores throughout the Midwest. Its business model included selling stores to shareholders and leasing them back. One such arrangement was made with T.D. Investments I, LLP (TDI), which leased 2 stores to Great Lakes. But in 2012, under mounting financial pressure, Great Lakes terminated its TDI leases.

Adversary Case in Bankruptcy

Ultimately, Great Lakes sought Chapter 11 Bankruptcy protection less than 60 days after terminating the TDI leases. The Estate’s Unsecured Creditors’ Committee filed an Adversary action contending that those lease terminations amounted to either a preferential or fraudulent transfer by Great Lakes to TDI, and that the value of those leases should be disgorged to the Bankruptcy Estate. The Bankruptcy Court denied relief to the Unsecured Creditors’ Committee because, in its analysis, termination of the TDI leases was not a “transfer” at all – much less a preferential or fraudulent transfer.

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Henderson Square Condo. Ass’n v. LAB Townhomes, LLC
Illinois Supreme Court , Case No. 2015 IL 118139
Opinion Nov. 4, 2015 – Rehearing Denied Jan. 28, 2016

This case stems from the ill-fated Lincoln-Belmont-Ashland Redevelopment project featured on our Blog before. When a Condominium Association sued the developers based on failure to reveal construction defects, the Courts weighed in on whether the claims were time-barred. Untimely, the Appellate and Supreme Court broke with the Trial Court and found that a question of fact remained as to what the Plaintiff Condominium Association knew – or should have known – and when. Only after answering that question, the Court decided, could it be determined if certain claims were time barred.

Factual Background

In 2006 Defendants developed and sold unites pursuant to a contract with the City of Chicago for the mixed use Lincoln-Belmont-Ashland Redevelopment project. In 2011 Henderson Square Condominium Association sued the developers of the community, alleging: breach of implied warranty of habitability, fraud, negligence, breach of the prohibition in the Chicago Municipal Code as to the misrepresentation of material facts in marketing and selling real property, and breach of a fiduciary duty.

Trial Court

The Trial Court dismissed the Condo Association’s Complaint because it concluded that Plaintiffs failed to adequately plead the Chicago Municipal Code violation and breach of fiduciary duty and that certain of the Counts were time-barred pursuant to 735 ILCS 5/13-214 and 5/2-619.

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Smith v. Sipi, LLC
7th Circuit U.S. Court of Appeals
Docket 15-1166 Date:Jan. 20, 2016

In this case from right in our neighborhood – Joliet, Illinois – the Bankruptcy Court and 7th Circuit agree that using the market value of property instead of its artificially low disposal price in a tax sale reflects the real intent of both Bankruptcy law and Illinois law. At the same time, both Courts agree that one taking from a tax-sale buyer is entitled to bona fide purchaser protection.

Background

The Smiths lived in a single-family home in Joliet, Illinois. In 2004 Mrs. Smith inherited the property. While living there in 2000, she and her husband failed to pay the real estate taxes, giving rise to a tax lien in favor of Will County. At a 2001 auction, SIPI purchased the tax lien and paid the delinquent taxes of $4,046.26 plus costs.Mrs. Smith did not redeem that tax obligation and SIPI recorded its Tax Deed in 2005; ultimately selling the property to Midwest for $50,000.

Procedural History

In 2007 the Smiths filed for Chapter 13 Bankruptcy protection and successfully sought to avoid the Tax Sale. Both the Bankruptcy Court and the 7th Circuit Court of Appeals agreed that under the terms of 11 U.S.C. 548(a)(1)(B) the property was not transferred for reasonably equivalent value. However, both Courts did find that Midwest was a “subsequent transferee in good faith” (i.e. a bona fide purchaser) entitled to retain the value of the property it had purchased.

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7th Circuit Court SealIN Petroleum Mkters & Convenience Store Ass’n v. Cook

No. 14-2559 (7th Cir. 2015)

Appeal from District Court for Southern District of Indiana, Indianapolis Division
No. 1:13-cv-00784-RLY-DML — Richard L. Young, Chief Judge

Argued Jan.07, 2015  Decided Dec.14, 2015

This case raises the issue of equal protection under the 21st Amendment to the Constitution. An association of convenience stores filed suit against the State of Indiana in the Federal District Court seeking to invalidate a state law restricting the sale of cold packaged beer. Their suit contended that the law violated the Equal Protection Clause of the Constitution because certain stores were permitted to sell cold beer while grocery and convenience stores were not. District Court upheld the law and entered judgment for the State of Indiana, and the 7th Circuit affirmed.

A threshold question before the Court was the extent to which the 21st Amendment affected this case. Indiana argued that it had “nearly absolute” authority to regulate alcohol sales under that Amendment and that no further analysis was necessary. While the 7th Circuit disagreed with that analysis, it found that the District Court was right to uphold the law because Indiana’s cold-beer statute was only subject to “rational-basis” review and survived analysis under that standard

Factual Background

The Indiana Petroleum Marketers and Convenience Store Association, which serves gas stations and convenience stores, along with 3 members and a consumer, filed suit in Federal Court challenging the constitutionality of SS.7.1-5-10-11 of the Indiana Code, which prohibits holders of a beer-dealer permit from selling cold packaged beer, contending that the statute reduces beer sales. The complaint named the chairman of the Indiana Alcohol and Tobacco Commission; the Commission itself; and the State of Indiana. The Commission and State were dropped from the suit, so the chair of the Commission was the sole remaining defendant.
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1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co.
2015 IL 118372 Date: December 3, 2015

The Illinois Supreme Court recently ruled on the tricky interplay between the Illinois Condominium Property Act and Illinois Mortgage Foreclosure Law. Both pieces of legislation are meant to give real estate owners, investors, managers, and ultimately residents, confidence that their needs will be met through the legal process. In this case however, the Bank was ultimately trumped by the condo association – even after the Bank’s successful foreclosure. The implications of the decision are stark if not altogether surprising: the condominium association always gets its money. Always.

Facts

In 2010 Deutsche Bank National Trust Co. as Trustee for Loan Trust # 2004-1, Asset-Backed Certificates, Series 2004-1 (“Deutsche”) purchased a unit at a judicial foreclosure sale. On March 27, 2012 condominium association 1010 Lake Shore Assoc. (the “Management Association”) sent Deutsche a Demand for Payment referencing unpaid common area expenses incurred during the time the unit was owned by the former occupant. Deutsche filed an Answer and the Management Association moved for Summary Judgment; arguing that there was no question of material fact as to the amount owed or Deutsche’s failure to pay assessments.

Ciruit Court Opinion: MSJ

The Management Association argued in its Motion for Summary Judgment in the Circuit Court of Cook County that based on Sec.9(g)(3) of the Illinois Condominium Property Act (“Act”), 765 ILCS 605/9(g)(3), the lien arising from the former owner’s unpaid assessments was not extinguished by Deutsche’s foreclosure because Deutsche had failed to pay assessments accruing after the judicial sale.

For its part, Deutsche responded that it could not be held liable under Sec.9(g)(3) for unpaid assessments that accrued before it purchased the unit. Following a hearing the Trial Court granted Summary Judgment and awarded the Management Association possession of the property. Continue reading

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7th Circuit Court Seal

Stifel, Nicolaus & Co. v. Lac Du Flambeau Band of Lake Superior Chippewa
U.S. Court of Appeals for the 7th Circuit Docket Nos. 14-2150, 14-2287 Opinion Date: November 24, 2015

In this case, the most recent appeal in a series of suits concerning the sale of bonds by a corporation (the “Corporation”) owned by the Lac du Flambeau Band of Lake Superior Chippewa Indians (collectively, the “Tribal Entities”), the 7th Circuit clarifies the standards applicable to injunctions as well as review of lower-Court decisions and, finally, jurisdiction.

Facts
The Corporation was chartered under tribal law to own and operate the Lake of the Torches Resort Casino (the “Casino”) on tribal lands in northern Wisconsin. The Casino  is operated under tribal-state compact with the State of Wisconsin.

In 2007 the Tribe decided to diversify its operations by investing in a project to build a riverboat casino, hotel, and bed and breakfast in Natchez, Mississippi. To secure funding for the investment and refinance some existing debt, the Corporation issued taxable gaming revenue bonds in January 2008. Godfrey, as counsel to the Corporation and bond counsel for the transaction, issued 2 opinion letters as to the meaning of several bond-related documents and the legality of the transaction.

The 2008 bond issue did not go as planned, and Wells Fargo filed suit. In that action, Wells Fargo alleged that the Corporation breached a bond indenture and stated that, as trustee for the bondholders, it wanted a receiver appointed. In that case, the 7th Circuit had held that a bond indenture constituted an “unapproved management contract” under the Indian Gaming Regulatory Act (“IGRA”) and was therefore void.

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Christopher B. Burke Engineering, Ltd. vs. Heritage Bank of Central IL

Docket No. 118955 Opinion Filed November 19, 2015

In this Opinion the Illinois Supreme Court comes down on the side of common sense when it comes to lienable improvements under §1 of the Illinois Mechanics Lien Act 770 ILCS 60/1. After reversing the lower Courts however, the case was sent back down to the Circuit Court to determine whether the owner of the property “knowingly permitted” improvements to be made.

Facts

In 2006 Carol and Glen Harkins (collectively, the “Harkins”) offered to buy property from Carol Shenck (“Shenck”) for the purpose of subdividing it and developing a subdivision. Burke Engineering (“Burke”) was hired by the Harkins to perform necessary prep work related to the development of the property. So while the work performed by Burke was integral to, and resulted in, improvements to the property (plat of subdivision, etc.), at the time that the work was done under a contract with Harkins, the property was still owned by Shenck. Eventually, the Harkins closed and development began according to the work done by Burke.

Heritage Bank of Central Illinois (“Heritage”) financed the purchase of the property in 2007 and held a Mortgage Lien. But thanks to the Great Recession, work stopped in 2008 and the Harkins failed to pay Burke (or anyone else). As 2008 dragged on however, Burke had still not been paid and eventually the company filed a Mechanics Lien against property – which by this time was owned by the Harkins (the “Lien”). In response, the Harkins filed Bankruptcy. This left Burke to foreclose its lien or not get paid at all.

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