7th Circuit Court of Appeals
Civil Tort — Bankruptcy/Irwin Union Bank & Trust
Elliott Levin v. William Miller, et al.
Assumptive arguments made by a bankruptcy trustee suing former bank directors were rejected by the 7th Circuit Court of Appeals, which said his assertions colored the court skeptical.
Federal regulators seized and shut down the Columbus-based Irwin Union Bank & Trust Co., which was a holding company for two banks, after it filed for bankruptcy in September 2009 amid the Great Recession. Two years later, Irwin’s bankruptcy trustee Elliott Levin sued three bank officers for breach of fiduciary duty.
Levin claimed the officers should have known the banks were going to fail and should have investigated alternatives to transferring a last-shot $76 million tax refund to potentially claim as an asset in bankruptcy, despite the board of directors’ clear directive to transfer the refund to the subsidiary banks. If the officers had presented this information to the board, Levin said the board would have declared bankruptcy before transferring the refund to the banks, thereby maximizing the holding company’s value for creditors.
The U.S. District Court for the Southern District of Indiana initially dismissed the case, but on remand from the 7th Circuit granted summary judgment in favor of former Irwin CEO William Miller, former chief financial officer Gregory Ehlinger and former executive vice president Thomas Washburn. The 7th Circuit affirmed the grant of summary judgment Aug. 17.
“Corporate officers have a duty to furnish the Board of Directors with material information, but that duty is subject to the Board’s contrary directives,” Judge Diane Sykes wrote for the court. “… The officers had no authority to second-guess the Board’s judgment with their own independent investigation.”
Levin had argued the officers breached their duty to provide information to the board. In a series of assumptions, he faulted them for failing to inform the board that an earlier bankruptcy could have maximized Irwin’s value.
“Even on its own terms, Levin’s complicated theory is dubious,” Sykes wrote. “The argument’s intricate chain of inferences rests on a series of speculative and increasingly questionable links — especially the assertion that, contrary to both regulatory guidance and Irwin’s years-long understanding (memorialized in a written agreement), the Board would have tried to claim the tax refund as its own asset in bankruptcy. Color us skeptical.”
The 7th Circuit found Levin’s theories fundamentally flawed, noting that as agents of the board, the officers had a duty to execute the board’s strategy and directives. It added that the board made its decision based on “advice of regulatory agencies and deeply experienced outside counsel.”
Finally, Levin argued it would only be logical for the board to be interested in receiving information about Irwin’s potential value in bankruptcy. If so, the board may have changed course had it known that an earlier bankruptcy could maximize value.
But the 7th Circuit also rejected that argument in Elliott Levin v. William Miller, et al, 17-1775.
“Taking account of the regulatory directives and expert legal advice, the Board exercised its judgment and chose to devote its resources to saving the banks,” Sykes concluded. “As agents, the officers had no right to spend company resources pursuing a different strategy.”
Criminal — Firearms/Motion to Suppress
USA v. David Watson
The 7th Circuit Court of Appeals vacated and remanded a motion to suppress two firearms from a vehicle search after it determined the search was unwarranted due to a lack of reasonable suspicion after an anonymous tip was made.
Gary Police received an anonymous 911 call from a 14-year-old who borrowed a stranger’s phone and reported seeing “boys” “playing with guns” by a “gray and greenish Charger” in a nearby parking lot. The caller said he was calling from a McDonald’s across the street and would try and stay near the borrowed phone.
Officer Anthony Boleware drove to the lot and blocked a car matching the caller’s description, which contained four males, before approaching on foot. All four of the men denied having weapons in the car.
When three more officers arrived on the scene, each officer blocked a car door. Upon asking the occupants to step out of the vehicle, front seat passenger David Watson threw a gun on the backseat floor, where officers found a second gun.
Watson was charged with possessing a firearm as a felon, but he moved to suppress the two weapons recovered from the car. But the Indiana Northern District Court found the seizure was lawful and denied Watson’s motion to suppress, and he later pleaded guilty to unlawfully possessing the gun.
But the 7th Circuit vacated and remanded that decision in USA v. David Watson, 17-1651, noting first that anonymous tips “seldom demonstrate the informant’s basis of knowledge or veracity,” and alone are not usually reliable enough to establish reasonable suspicion. The government relied on Navarette v. California, 134 S. Ct. 1683 (2014), to support the district court’s ruling, but the appellate panel distinguished Navarette from the instant case.
The first distinction was that the anonymous 911 call in Watson’s case was less reliable because the caller borrowed a stranger’s phone, limiting the usefulness of the system’s tracing ability. Any number identified would not lead back to the caller because he had no permanent connection to the phone, and geographic location at the time of the call would be useful only so long as the caller remained near the phone, Judge Amy Coney Barrett wrote Aug. 17.
Second, the panel found that “a mere possibility of unlawful use” of a gun was not sufficient to establish reasonable suspicion in this case. The anonymous call did not create a reasonable suspicion of an ongoing crime, the 7th Circuit found, noting that the connection to unlawful activity was too speculative.
“’Boys’ could be a generic term for men of any age, and ‘playing with guns’ could mean displaying them, which is not criminal conduct,” Barrett wrote. “Lacking detail, the report of guns in public does not suggest likely criminal activity.”
Next, the 7th Circuit found the circumstances did not necessitate an emergency response. No suggestions were made by the anonymous caller that violence would ensue, or that it was a tense situation.
It also found that upon his arrival at the scene, Boleware’s worries should have “dissipated” when he found four males sitting leisurely in a car “with no guns in sight.” The 7th Circuit did, however, reject Watson’s claims that a child’s tip should be considered with skepticism.
Finally, the bench found unpersuasive the argument that the tip reliably conveyed information about likely criminal activity because the caller reported guns in what the officers considered a high-crime area. It noted people who live in rough areas may carry guns for protection and should therefore not be subject to more intrusive practices than those who may live in wealthier neighborhoods.
“We close by noting that the police were right to respond to the anonymous call by coming to the parking lot to determine what was happening,” Barrett concluded. “But determining what was happening and immediately seizing people upon arrival are two different things, and the latter was premature.”
“… Watson’s case presents a close call,” she wrote. “But this one falls on the wrong side of the Fourth Amendment.”
Civil Tort — Discrimination/Americans with Disabilities Act
Linda Rowlands v. United Parcel Service, Inc.
The 7th Circuit Court of Appeals reversed and remanded a decision denying a UPS employee’s claims of disability discrimination, failure to accommodate and retaliation, in violation of the Americans with Disabilities Act.
Linda Rowlands worked for UPS at its Fort Wayne facility for more than 25 years before she was fired on July 19, 2012, for altering her timecard. In response, Rowlands filed a charge of discrimination with the Equal Employment Opportunity Commission alleging discrimination based on her age, sex, and perceived disabilities. She also filed a grievance with her union and was ultimately reinstated. During the grievance proceedings, Rowlands told her boss, Steve Liskey, that she believed that she had been fired not for the alleged timecard fraud, but because of a knee injury.
Rowlands suffered several injuries in the years leading up to her termination, starting in 2005 when she was hit by a truck and needed a hip replacement. Between February and July of 2012, Rowlands suffered three knee injuries, one of which took place at UPS and required surgery. Over the years Rowlands took significant time off work on multiple occasions to recover from her injuries. She claimed UPS intended to terminate her again because her employee ID was never reactivated in UPS’s computer system, forcing her to use a supervisor’s ID to process packages.
Rowlands was fired for the second and final time in January 2013. She filed another charge of discrimination with the EEOC, this time alleging discrimination based on her knee-related disability, or UPS’s regarding her as having a disability, failure to accommodate that disability, and retaliation for engaging in protected conduct. The district court granted summary judgment to UPS, which the 7th Circuit Court reversed and remanded Aug. 24 in Linda Rowlands v. United Parcel Service, Inc., 17-3281.
On appeal, Rowlands argued that the district court committed reversible error when it found that she failed to state a failure to accommodate claim because her EEOC charge did not explicitly state that her requests for reasonable accommodations were denied. Rowlands contended the district court erred by holding her to a heightened pleading standard, and by neglecting to allow her an opportunity to respond to that point, which was not raised by UPS or addressed by either party.
Lastly, she argued that the district court erred in analyzing her retaliation claim under the burden-shifting framework when she was fired for allegedly threatening a co-worker with a taser.
The district court found that Rowlands failed to prove she was qualified and had a disability or that UPS failed to accommodate her disability in her 2013 EEOC charge. However, the 7th Circuit found both conclusions erroneous.
“The district court properly incorporated the facts articulated in the attached EEOC charges into Rowlands’ complaint, but erred in finding that they failed to state a failure to accommodate claim,” the court order read.
“According to Rowlands, her knee injuries substantially interfered with her ability to walk, stand, squat and kneel. These claims are sufficient to support Rowlands’ claim that she has a disability,” the 7th Circuit continued. “Although UPS would have been entitled to request a doctor’s note verifying Rowlands’ condition as part of the interactive process, it does not follow that she did not have a disability because her doctor had cleared her to return to work without restrictions.”
The 7th Circuit took issue with UPS’s argument that Rowlands was fired for threatening a male co-worker with a taser while leaving work, noting the alleged threat was ambiguous and there were several other instances where Rowlands seemed to be singled out by her supervisors.
“A reasonable jury could also find (the alleged threat) was not a ‘threat’ at all, or that even if [UPS] properly construed it as such, its decision to terminate [Rowlands] was a disingenuous overreaction to justify dismissal of an annoying employee who asserted h[er] rights under the ADA,” the 7th Circuit concluded.
Criminal — Mail Fraud/Evidence
United States of America v. Robert E. Stochel
A disbarred Indiana attorney who was convicted of mail fraud and sentenced to two years in federal prison after stealing more than $330,000 from a grocery store receivership has lost his appeal of both his conviction and sentence.
A 7th Circuit Court of Appeals panel unanimously upheld Robert Stochel’s conviction and sentence stemming from his mishandling of funds for the receivership of Tip Top Supermarkets, Inc., in United States of America v. Robert E. Stochel, 17-3576. The former Lake County attorney was indicted in 2016 after a court-ordered independent audit uncovered that he had drained the receivership of $331,840 for personal use.
Stochel had been appointed successor receiver for Tip Top Supermarkets in 2000 after brothers and co-owners Maurice and Alan Schwarz ended their business collaboration in 1987. By March 2004, the receivership had a zero balance, so Stochel began transferring outside funds into the receivership to cover its expenses.
Stochel also continuously lied to the court about the status of the receivership, going so far as to file a false accounting in September 2010 that claimed the receivership had nearly $230,000 in assets. He also requested $93,000 as compensation for his service, a request the court granted.
Then, when the court ordered the independent audit in November 2011 and ordered Stochel to turn over all receivership files, he falsely claimed the receivership had $8,000 to pay the auditor and requested under Trial Rule 60(B) more time to assemble the files. The judge partially granted the order, but later removed Stochel as receiver when he continued to fail to comply with court orders.
Meanwhile, the Indiana Supreme Court suspended Stochel in 2015 and eventually disbarred him. Additionally, Tip Top owners Maurice and Alan Schwarz began to raise questions about why Stochel had not been criminally charged. He was convicted in federal court of mail fraud in 2017.
Indiana Northern District Judge James T. Moody sentenced Stochel to two years in December 2017 after denying credit for acceptance of responsibility, imposing a two-level enhancement for violating a judicial order and calculating the loss amount at $331,840, the full amount that was drained. Stochel challenged those three sentencing provisions on appeal, but the 7th Circuit upheld his sentence in all respects.
After finding the indictment against Stochel was timely filed because his Trial Rule 60(B) motion was an attempt “to delay the investigation and discovery of the fraud,” Judge Diane Sykes said Stochel was not entitled to an acceptance-of-responsibility credit because of his challenge to the argument that his Trial Rule 60(B) motion was part of his fraudulent scheme.
“Whether the use of the mails was ‘in furtherance of the scheme’ is the third element of the crime,” Sykes wrote. “… Stochel’s decision to pick that fight is fatal to his claim for acceptance-of-responsibility credit; defendants don’t get credit for two-thirds of a contrite heart.”
The court then found the $216,000 Stochel paid into the receivership were not “legitimate payments” that could reduce his loss amount because those funds were paid only to cover his tracks. Finally, the panel determined the two-point offense level enhancement was appropriate.
“If nothing else, that required Stochel to notify the court when he withdrew funds from the receivership,” Sykes said. “(H)e obviously did not comply.”
Indiana Supreme Court
Criminal — Child Molestation/Evidence, Penetration
Curtis Boggs v. State of Indiana
The Indiana Supreme Court found the “slightest penetration of the sex organ” was sufficient to affirm the conviction of a man of four counts of child molestation and eight counts of sexual misconduct with a minor.
Curtis Boggs was found guilty of child molestation after S.H. testified that Boggs put his finger “in the folds of her vagina” and touched her clitoris. Boggs appealed on grounds the evidence was insufficient to prove “penetration” for purposes of the statute defining other sexual misconduct.
On appeal, Boggs argued there was insufficient evidence to support the conviction. He contested that other sexual misconduct requires proof of “more intrusive acts,” comparing the statute defining sexual intercourse as “any” penetration of the female sex organ to the statute defining other sexual misconduct as “the” penetration of the sex organ.
However, justices affirmed his conviction in Curtis Boggs v. State of Indiana, 18S-CR-430, concluding the evidence supported his Level 1 felony conviction.
“We agree with the Court of Appeals and grant transfer to provide guidance on the meaning of ‘penetration’ for purposes of ‘other sexual misconduct’,” justices wrote in the 3-page opinion. “Precedent makes clear that proof of the ‘slightest penetration’ of the female sex organ, including penetration of the external genitalia, is sufficient to sustain a conviction for child molestation based on sexual intercourse.”
“Boggs contends this differing language indicates the legislature intended ‘penetration’ to have different meanings for purposes of the two statutes,” the court continued. “We hold that proof of the slightest penetration of the sex organ, including penetration of the external genitalia, is sufficient to demonstrate a person performed other sexual misconduct with a child.”
Accordinginly, the court affirmed his conviction for Level 1 felony child molestation.
Indiana Court of Appeals
Domestic Relation — Child Custody/Default Judgment
Crystal M. Powers v. Bryan A. Blunck
A Florida mother can continue with an Indiana custody dispute with the father of her teenage daughter after the Indiana Court of Appeals reversed a default judgment against her.
In the spring of 2012, Crystal Powers’ daughter, T.B., was placed in her custody after the child’s father, Bryan Blunck, was arrested on multiple drug charges. Powers eventually was granted full custody of T.B., and the two moved to Florida.
Then in April 2017, Powers signed a form that “granted guardianship” of T.B. to Blunck because he had been released from prison, and she believed it was in her daughter’s best interests to live with her father. T.B. returned to Indiana, where she wrote an essay for school revealing she had been abused by Powers’ husband. As a result of the abuse, T.B. wrote she had started cutting herself and making suicidal comments.
The following November, the Department of Child Services determined Blunck was using methamphetamine, so T.B. was placed with his sister. Powers still had legal custody of her child pursuant to the 2012 custody order, so she traveled to Indiana to bring T.B. back to Florida.
Blunck responded by filing an emergency petition to modify custody and return the child to Indiana, alleging he feared she would hurt herself if she continued living in Florida. The Gibson Circuit Court ordered Powers to appear for a hearing on Dec. 11, but Powers — who was served with Blunck’s motion on Dec. 6 — moved to continue the hearing on Dec. 8 because she could not take off work and because she could not travel due to a recent surgery.
The trial court denied the motion, found Powers “should be defaulted” and granted Blunck sole legal and primary physical custody of T.B. But the Indiana Court of Appeals reversed that decision Aug. 26, with Chief Judge Nancy Vaidik noting Powers was given only a short time to travel and provided a doctor’s note indicating she could not travel for the Dec. 11 hearing.
“Despite Mother showing good cause for a continuance, the trial court denied the request and entered a default judgment against her for failing to appear,” Vaidik said. “Generally, Indiana does not favor default judgments in custody proceedings ‘because of the grave importance of the matters decided therein. … We stress that trial courts should be wary of finding a parent to be in default in a child-custody proceeding, because the trial court is always going to be able to make a better decision regarding the health, education, and welfare of children when both parents are heard.”
Thus, the case of Crystal M. Powers v. Bryan A. Blunck, 18A-DR-105, was remanded for further proceedings.
Mental Health — Reversal of Involuntary Commitment
In Re: The Commitment of D.S.; D.S. v. Indiana University Health Bloomington Hospital
The Indiana Court of Appeals reversed and remanded a trial court’s decision to order a mentally ill woman to regular commitment at Indiana University Health Bloomington Hospital, finding there was not clear and convincing evidence to prove commitment was necessary.
In January 2018, Bloomington police responded to a 911 call regarding an incident in which D.S. was waving a sign out of a vehicle while screaming. Believing D.S. to be suffering from psychosis, police forcibly removed her from the vehicle and brought her to the hospital for an emergency detention.
D.S. was held in the hospital’s crisis care unit after Dr. Daniel J. Garrison filed an application for emergency detention on her behalf. Garrison determined D.S. appeared to have “acute or chronic psychosis” and was “manic.” Garrison further alleged D.S.’s decision making was impaired, thus placing her in a potentially harmful situation.
Hospital social worker James D. Baugh then filed a petition with the Monroe Circuit Court seeking regular commitment of D.S. at the hospital for a period of one year. Simultaneously, psychiatrist Carey Mayer filed a physician’s statement alleging D.S. was suffering from a psychiatric disorder and was “delusional.”
At trial, Mayer read into the record, over D.S.’s objection, an assessment done by one of the hospital’s therapists when D.S. was admitted. Mayer also testified he believed D.S. suffered from a “schizoaffective disorder, bipolar type” and that she refused to consider taking necessary medications.
Mayer concluded that in her week-long stay at the hospital, D.S. had remained “psychotic” and “preoccupied,” solidifying his belief that “she is gravely impaired and unable to provide for her own safety, shelter, food, clothing, [and] needs.” The trial court granted the hospital’s petition, finding that D.S. was gravely disabled and in need of commitment for a period expected to exceed ninety (90) days while also granting a forced medication order.
On appeal, D.S. argued the trial court erred in ordering her regular commitment because there was insufficient evidence to prove that she was “gravely disabled,” as required by statute. She claimed she is not unable to provide for her essential human needs and does not have a substantial impairment or obvious deterioration of judgment that results in her inability to function independently.
D.S. did not dispute the trial court’s finding that she is mentally ill in In Re: The Commitment of D.S.; D.S. v. Indiana University Health Bloomington Hospital, 18A-MH-590, but argued the only evidence bearing on the finding that she was “gravely disabled” was the incident involving police and her refusal to take medication.
For its part, the hospital contended D.S.’s apparent “inability to . . . abide by the normal rules of conduct[,]’” in the car incident was sufficient to prove that she was gravely disabled. But the appellate court found the hospital’s burden of proof required more than a showing that D.S. behaved abnormally or idiosyncratically, and that it failed to show by clear and convincing evidence that D.S. lacked the judgment and ability to function independently.
The appeals court pointed D.S.’s testimony about her life outside of the hospital, noting D.S. stated she had a place of residence, maintained relationships with family and friends, and had held a steady job until January 2018. It also noted D.S. indicated that she was unwilling to take medication because of negative side effects, but that she would be willing to try an alternative.
“Other than Dr. Mayer’s diagnosis of psychosis caused by schizoaffective disorder, the Hospital presented no evidence at all, much less clear and convincing evidence, that D.S. could not function independently,” Judge Rudolph Pyle wrote for the court. “The Incident was one isolated event, and while D.S.’s actions during the Incident were unusual, there was no evidence that her unusual conduct prevented her from functioning independently outside the Hospital.”
“…Accordingly, because the only evidence the Hospital presented at trial did not constitute clear and convincing evidence to support D.S.’s regular commitment, we reverse the trial court’s decision and remand for the trial court to vacate the regular commitment.”
Civil Plenary — Subrogation/Timeliness
Douglas C. Holland v. Indiana Farm Bureau Insurance
The Indiana Court of Appeals reversed a trial court judgment, ordering summary judgment for a Lawrenceburg attorney facing a breach lawsuit related to his representation of a personal injury client. The appellate court ruled the insurer suing him did not timely file its subrogation claim.
After being retained to represent a woman in a personal injury lawsuit stemming from a vehicle collision, Douglas Holland asked the client to allow him to keep $3,500 of her settlement to cover subrogation claims that Indiana Farm Bureau Insurance might have for one year beginning in December 2014. Farm Bureau had paid the client $5,000 two years earlier to cover her medical bills.
Holland and Farm Bureau were unable to negotiate a subrogation amount in June 2015, so Farm Bureau asked Holland to request a damages hearing in the Dearborn Superior Court. The attorney, however, said the lawsuit had been dismissed, so Farm Bureau would have to file a small claims action to determine what amount the client owed.
That was the end of the communication between the parties in 2015, so Holland complied with the client’s request to return the balance of the settlement that December. But in 2017, the insurer made a formal demand for payment of its subrogation claim and filed a breach of fiduciary duty complaint against Holland, seeking $3,333.
Both parties moved for summary judgment, and the trial court eventually ruled in Farm Bureau’s favor. The attorney appealed in Douglas C. Holland v. Indiana Farm Bureau Insurance, 18A-PL-792, and the Indiana Court of Appeals reversed the grant of summary judgment to Farm Bureau on Aug. 28.
Writing for the unanimous appellate court, Judge John Baker said the court understood Holland’s assumption that Farm Bureau had waived its subrogation claim after the insurer failed to communicate with him in the last six months of 2015. But the court also found Holland had a duty to retain the funds until the subrogation dispute was resolved, rather than returning the funds in December 2015.
“That duty, however, is not interminable – the attorney need not hold the money forever,” Baker said.
In this case, the court found the applicable statute of limitations for Farm Bureau to file its complaint ran for two years, considering the issue in the complaint — breach of fiduciary duty — “is a tort claim for injury to personal property, and an action for injury to personal property must be commenced within two years after the cause of action accrues.” Here, the cause of action accrued on June 9, 2015, when the parties reached an impasse in their discussions of the subrogation amount.
“Farm Bureau filed its complaint against Holland on September 14, 2017 — more than three months too late,” Baker wrote. “The trial court erred by granting summary judgment for Farm Bureau and by denying Holland’s motion for summary judgment when Farm Bureau’s claim was time-barred.
“The judgment of the trial court is reversed and remanded with instructions to enter judgment in favor of Holland,” he said.•