7th Circuit Court of Appeals
Civil – Class Certification
Bryana Bible v. United Student Aid Funds, Inc.
A 7th Circuit Court of Appeals panel has split with each judge writing a separate opinion about a lawsuit brought by a student who defaulted on her school loans and then sued when the lending agency tacked on collection costs.
Bryana Bible was found to be in default on her student loan in 2012. The lending bank transferred the debt to USA Funds which provided Bible with options for repayment. Bible and her attorney negotiated a loan rehabilitation agreement which set the total amount due at $18,112.85 and required Bible to make monthly payments of $50. The agreement indicated there was no “current collection cost balance.”
Subsequently, USA Funds assessed $4,547.44 in collection costs against Bible. It had applied her monthly payments toward the collection costs rather than the principal.
Bible filed a complaint alleging, in part, breach of contract. The U.S. District Court for the Southern District of Indiana dismissed the lawsuit, but the 7th Circuit reversed and remanded for further proceedings.
Before the 7th Circuit, Bible argued she timely entered into a repayment agreement and complied with the terms. Therefore, federal regulation prohibited USA Funds from assessing collection costs.
USA Funds pointed to language in the Federal Stafford Loan Master Promissory Note that allows the loan holder to impose “reasonable collection fees and costs, plus court costs and attorney fees.”
Judge David Hamilton, writing the majority’s opinion, agreed with Bible. He described the regulations as providing a “safe harbor” for borrowers. Only if the borrower does not take action within the 60-day window can the guaranty agency take collection actions, report the default to consumer reporting agencies and assess collection costs against the borrower.
Judge Joel Flaum wrote a concurring opinion but differed with Hamilton on the collection costs. He did not agree that the text of the regulations unambiguously supported Bible’s interpretation of the statutory and regulatory scheme.
Meanwhile, Judge Daniel Manion dissented, calling Bible’s interpretation her own contrivance. He echoed Flaum in highlighting the differences between a repayment agreement and a rehabilitation agreement.
Bible entered into a loan rehabilitation agreement with USA Funds. This agreement established a new repayment schedule and her default was erased from her credit report. Also, costs would be assessed although they were capped at 18.5 percent of her outstanding balance.
“Bible’s theory is contrary to the plain language of the statutes and regulations because nowhere do the statutes and regulations contemplate that “reasonable costs” equals “no costs” for borrowers who timely enter into a rehabilitation agreement,” Manion wrote.
Civil Tort – Negligent Misrepresentation/Breach of Contract
JMB Manufacturing Inc., d/b/a/ Summit Forest Products Co. v. Child Craft, LLC, et al
Harrison Manufacturing, LLC, f/k/a Child Craft, LLC v. Ron Bienias
A $2.7 million judgment in a messy dispute between a supplier and a now defunct furniture manufacturer has been overturned by the 7th Circuit Court of Appeals, which called the award “too heavy a sanction.”
Children’s furniture maker Child Craft Industries, which was acquired by Harrison Manufacturing in 2008, contracted with Summit Forest Products Co. to supply raw wood components for a new high-end baby furniture line. However, the goods shipped to Child Craft never conformed to its specifications, which forced the manufacturer to halt production and cancel orders it had received for the new line of furniture. A few months later, Child Craft closed altogether.
Initially, Summit sued Child Craft for breach of contract and the tort of conversion based on Child Craft’s refusal to pay for the wood products. Child Craft responded with a counterclaim for breach of contract against Summit and also for the tort of negligent misrepresentation against Summit and owner Ron Bienias.
When Summit and Bienias lost their counsel about a month before trial and did not enlist a new attorney by deadline, the U.S. District Court for the Southern District of Indiana lost patience and entered a default against Summit on Child Craft’s claims.
The 7th Circuit, reviewing the pair of cases on appeal, found the District Court had overstepped.
“…the district court abused its discretion in refusing to set aside the entry of default against Summit on the negligent misrepresentation counterclaim,” Judge David Hamilton wrote for the court. “As best we can tell, Summit was without a lawyer for no more than about two weeks before the court acted. The entry of what turned out to be multimillion dollar damages award against it, without regard for the merit of the claim, gives us serious pause.”
The Chicago panel noted Indiana’s economic loss doctrine gave Summit and Bienias a strong defense against the negligent misrepresentation counterclaim. Indiana law bars liability in tort for pure economic loss caused unintentionally.
“A multimillion dollar judgment on a specious legal theory is too heavy a sanction for a corporation’s two-week gap in representation, especially when setting aside the entry of default would not have caused prejudice to the opposing party or the court’s docket,” Hamilton wrote.
The 7th Circuit reversed the judgment on Child Craft’s negligent misrepresentation counterclaim against Bienias and Summit. It directed the District Court to enter final judgment in favor of Bienias and Summit. In addition, it affirmed the District Court’s dismissal of Summit’s claims against Child Craft.
Civil – School Corporation/Interference & Retaliation/FMLA
Terrence Preddie v. Bartholomew Consolidated School Corp.
A Columbus teacher who claimed his contract wasn’t renewed after he missed 23 days of school should have his day in court on his claims that the school system interfered with his rights under the Family Medical Leave Act and retaliated against him.
Former fifth-grade teacher Terrence Preddie is diabetic and his son, Elliott, suffers from sickle cell anemia, according to the record. When Preddie’s teaching contract wasn’t renewed after the 2010-2011 school year, he sued alleging violations under FMLA, race discrimination under Title VII of the Civil Rights Act and claims under the Americans with Disabilities Act.
The District Court granted summary judgment in favor of the school system on all claims. In a per curiam opinion, judges on a 7th Circuit Court of Appeals panel affirmed for the most part but remanded the FMLA claim.
The 7th Circuit noted that Preddie had placed the schools on notice of his son’s illness and his diabetes, and there was sufficient evidence in the record from which a jury could conclude that the schools interfered with Preddie’s FMLA rights and retaliated by failing to renew his contract.
Civil – Hospital Assessment Fee
Saint Catherine Hospital of Indiana, LLC v. Indiana Family and Social Services Administration
14-2420 & 142546
St. Catherine Hospital was successful in getting a reprieve from a dispute with the state of Indiana over the hospital assessment fee.
The Indiana Family and Social Services Agency had determined that the hospital owed a HAF of $1.11 million for fiscal year 2012 and roughly the same for fiscal year 2013. When St. Catherine did not pay, the state agency began withholding Medicaid reimbursements.
In June 2012, the hospital filed a voluntary petition for relief under Chapter 11 of the bankruptcy code. The FSSA continued its withholding and, in July 2012, gave St. Catherine a bill for fiscal year 2013 totaling $1.13 million. When the medical facility did not pay, the state began withholding additional reimbursements.
All told, FSSA withheld $989,783.78 to cover the HAF for fiscal year 2013.
After the bankruptcy court granted its motion for preliminary injunction, St. Catherine sought to recover $615,912.64 withheld for fiscal year 2012 and the $989,738.78 withheld for fiscal year 2013.
The FSSA appealed and the U.S. District Court for the Southern District of Indiana reversed the Bankruptcy Court’s judgment as to the fee imposed for fiscal year 2013, deeming it a post-petition claim.
The 7th Circuit reversed the District Court.
The Chicago panel found the 2013 HAF was assessed for St. Catherine’s cost reports from fiscal year 2011 and other financial information on file as of Feb. 28, 2012. All of these activities occurred before the hospital filed for bankruptcy. Therefore, the 7th Circuit determined all of that conduct occurred before the filing of the bankruptcy petition so the claim is subject to the automatic stay.
“Thus, assuming FSSA’s reading of Provider Bulletin BT201217 is accurate, it would simply mean that had St. Catherine ceased to be an eligible hospital prior to the beginning of the fiscal year 2013, a contingency for its 2013 HAF liability would not have been met,” Judge Ann Claire Williams wrote for the court. “It would not mean that the underlying claim did not already exist.”
Indiana Supreme Court
Juvenile – Termination of Parental Rights/Inmate
In Re the Involuntary Term. of the Parent-Child Relationship of K.E., a Minor Child, and His Father, J.E., and His Mother, S.S. v. Ind. Dept. of Child Services
A man serving a 10-year sentence for dealing in methamphetamine, neglect of a dependent and maintaining a common nuisance is being given the opportunity to show he has changed.
The Indiana Supreme Court has overturned the trial court’s order terminating the parent-child relationship between J.E. and his son, K.E. The five justices noted the state’s courts have upheld the parental rights of incarcerated parents.
“We are persuaded that there was insufficient evidence to support a reasonable probability that the conditions resulting in removal will not be remedied or that Father poses a threat to K.E.’s well-being,” Justice Steven David wrote for the court. “As to both, either the record does not support the findings or the findings do not support the trial court’s conclusions. Thus, the order terminating Father’s parental rights was clearly erroneous.”
In June 2014, the Vanderburgh Superior Court terminated J.E.’s parental rights, concluding the conditions that resulted in the child’s removal would likely not be remedied and that the continuation of the parent-child relationship could pose a threat to K.E.’s well-being. A split Indiana Court of Appeals affirmed in a memorandum decision with Judge John Baker dissenting.
Baker’s dissent was echoed in the Supreme Court’s opinion. The justices pointed to the number of classes and programs J.E. has completed while in prison to improve his parenting skills and address his addiction issues. Also, he has bonded with K.E. through nightly phone calls and regular visitation.
“Given the substantial efforts that Father is making to improve his life by learning to become a better parent, establishing a relationship with K.E. … and attending substance abuse classes, it was not proven by clear and convincing evidence that Father could not remedy the conditions for K.E’s removal,” David wrote.
In addition, J.E.’s work behind bars also convinced the Supreme Court he did not pose a threat to his son.
“…Father has pursued every avenue possible to complete programs to better prepare himself for parenthood and a drug-free lifestyle after being released,” David wrote. “Father’s interactions with K.E. are healthy and the two have bonded. … this Court is not persuaded that Father’s past criminal history and drug abuse provided clear and convincing evidence that Father now poses a threat to K.E.’s well-being.”
Civil Plenary – General Wrongful Death Statute/Attorney Fees
Sci Propane, LLC; South Central Indiana Rural Electric Membership Corp.; RushShelby Energy Rural Electric Co-op, Inc. v. Courtney Frederick, as Personal Rep. of the Est. of Stephan Fredrick, Deceased
In a case of first impression, the Indiana Supreme Court said it was “neither absurd nor contrary to public policy” to find the state’s General Wrongful Death Statute provides different damage awards depending on survivors.
The question of damages arose in a wrongful death claim Courtney Frederick filed on behalf of the estate of her deceased husband, Stephan, against SCI Propane LLC and others. After a jury apportioned 65 percent of the liability to the defendants, the estate moved for partial summary judgment, seeking attorney fees under the Indiana’s General Wrongful Death Statute.
The trial court granted the motion and the Indiana Court of Appeals affirmed.
However, the Indiana Supreme Court reversed. The five justices ruled the 50-year-old statute does not allow for attorney fees when the decedent is survived by a spouse and/or children.
Reviewing the General Wrongful Death Statute, the Supreme Court noted it divides into two separate categories of decedents – those with survivors and those without.
The second category (deceased individuals who have no survivors) was addressed in McCabe v. Commissioner, Indiana Department of Insurance, 949 N.E.2d 816, 819-21 (Ind. 2011). Here, the justices looked at the wrongful death statute in conjunction with the state’s Adult and Child Wrongful Death statutes which both apply to decedents who are unmarried and without dependents. The Supreme Court determined under the doctrine of in pari material, the language in the second category of the wrongful death statute and in the adult and child statutes indicate attorney fees are recoverable.
But in Frederick’s claim, the first category of the wrongful death statute applies. The justices note the statute allows for damages for medical and funeral expenses or for the benefit of the survivors. Taking a narrow reading, the Supreme Court concluded attorney fees do not qualify as damages.
“This outcome is neither absurd nor contrary to public policy. The existence of a surviving spouse or dependent of a decedent creates a significant incentive for the personal representative of the estate to pursue a wrongful death claim for the benefit of the survivors, who were perhaps financially dependent upon the decedent and could face significant hardship without his or her income,” Justice Mark Massa wrote for the court.
“In the absence of such survivors, however, the only “party” arguably damaged as a matter of law is the decedent, and thus the estate itself,” Massa continued. “It is therefore logical that our General Assembly would provide extra incentive—in the form of statutory fee awards—to personal representatives prosecuting such actions, in order to ensure that those who commit acts resulting in a wrongful death are held liable, which further encourages such actors to avoid that wrongful conduct in the future.”
Indiana Court of Appeals
Small Claim – Jurisdiction/Burden to Prove
Abdullah Alkhalidi v. Indiana Department of Correction
A pro se plaintiff who claimed property seized from him in a “strip cell” disciplinary action and wasn’t returned will have his day in court after the Indiana Court of Appeals reinstated his claim.
Abdullah Alkhalidi claims that property valued at more than $419 was taken from him in 2012 while he was an inmate at the Wabash Valley Correctional Facility. He filed grievances after he was transferred to Westville Correctional Facility but was told to file with Wabash. He sent a letter asking for an appeal but received no response.
Alkhalidi filed a replevin action in small claims court in 2013, but the court dismissed the suit, finding he had failed to exhaust DOC’s administrative remedies. Judge Michael Barnes wrote for the court that decision was clearly erroneous.
“The small claims court had subject matter jurisdiction to consider Alkhalidi’s replevin claim,” Barnes wrote, “The DOC, not Alkhalidi, had to burden of proving that Alkhalidi failed to exhaust his administrative remedies before filing his claim. Because the DOC did not prove such, the small claims court erroneously dismissed Alkhalidi’s claim.”
Domestic Relation – Contempt
Jason Stanke v. Nicole Swickard
A trial court’s multiple contempt orders against a father have been overturned after the Indiana Court of Appeals found they did not “clearly and distinctly” state the reasons for the contempt citations.
Hamilton Superior Court issued three orders of contempt against Jason Stanke. The divorced father of two was found in contempt for not returning his two children to his ex-wife after his midweek parenting time and for taking the youngsters out of state without telling his ex-wife. Also, he was found in contempt for failing to pay child support.
However, the Court of Appeals reversed with instructions to vacate the findings of contempt.
The unanimous panel determined the contempt orders for Stanke not returning his children and taking them across state lines did not comply with Indiana Code 34-47-3-5(b). The order failed “to clearly and distinctly set forth the facts underlying Stanke’s contempt citations” …and failed “to even include these allegations as ones on which Stanke was being ordered to show cause.”
In addition, the Court of Appeals held the contempt order for nonpayment of child support did not meet the requirements of I.C. 31-16-12-6(c). The order did not include either the time when the trial court issued its order for support, Stanke’s history of payments or the amount of his arrearage.
The Court of Appeals concluded Stanke’s due process rights were violated and the trial court erred in finding him in contempt of court.•