Weekly Case Digests October 21, 2019 October 25, 2019.

Byline: WISCONSIN LAW JOURNAL STAFF

7th Circuit Digests

7th Circuit Court of Appeals

Case Name: Adriel Osorio v. The Tile Shop, LLC,

Case No.: 18-2609

Officials: SYKES, BARRETT, and ST. EVE, Circuit Judges.

Focus: Illinois Wage Payment and Collection Act Violation

Anyone who has worked in a commissioned sales position knows that earnings are unpredictable. Commissions often fluctuate from one pay period to the next. The Tile Shop, LLC, a specialty retailer of ceramic and stone tile, uses a compensation system designed to smooth the earnings of its commissioned sales staff. The Tile Shop pays a semimonthly "draw" of $1,000 ($24,000 annually) even if a sales associate earns less than that amount in commissions during the pay period. The Tile Shop reconciles and recovers any shortfall between actual earned commissions and the $1,000 draw in subsequent pay periods, but only from commissions in excess of $1,000.

For ten months Adriel Osorio sold tile and related products for The Tile Shop, first in Illinois and then in New Mexico. His earnings reflected the ebb and flow of sales. When business was slow and his commissions totaled less than $1,000 in a pay period, The Tile Shop paid him the guaranteed $1,000 and reconciled the difference in later pay periods when his commissions exceeded $1,000. He quit in July 2014.

Months later Osorio filed this class action alleging that The Tile Shop's "recoverable draw" system violates the Illinois Wage Payment and Collection Act ("IWPCA" or "the Act") and its implementing regulations. As relevant here, the regulatory scheme prohibits employers from deducting more than 15% from an employee's wages per paycheck as repayment for previous cash advances. Osorio's suit claimed that The Tile Shop's compensation system functions as a series of cash advances and his former employer deducted more than 15% of his wages at various points to recoup previous draw payments.

Ruling on cross-motions for summary judgment, the district judge held that The Tile Shop's compensation system does not involve "cash advances," so no violation of Illinois law occurred. We affirm, though on a different rationale. The Act prohibits "deductions by employers from wages or final compensation" unless specified conditions are met. 820 ILL. COMP. STAT. 115/9 (2018). The rules for repayment of cash advances are found in the regulations, but the threshold question is whether The Tile Shop's draw reconciliations are "deductions" from wages or final compensation. They are not. The reconciliations determine the employee's gross wages before tax withholding and other deductions are made.

Affirmed

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7th Circuit Court of Appeals

Case Name: Crum & Forster Specialty Insurance Company v. DVO, Inc., formerly known as GHD, Inc.,

Case No.: 18-2571

Officials: BAUER, ROVNER, and HAMILTON, Circuit Judges.

Focus: Insurance Duty to Defend Breach of Contract Exclusion

This appeal arises from a diversity action for declaratory relief brought by Crum & Forster Specialty Insurance Company ("Crum") against GHD Inc., now known as DVO Inc. ("DVO"), seeking a determination that Crum does not have a duty to defend DVO in a state court action filed against DVO. Crum provided insurance to DVO, and the question is whether the Errors & Omissions ("E&O") coverage of the primary and excess insurance policies it pro- vided to DVO, along with any exceptions in the policies, covers the state court claim for a contract violation such that it imposes a duty for Crum to defend DVO in that action.

The underlying contract claim was brought by WTE-S&S AG Enterprise, LLC ("WTE") against DVO. DVO designs and builds anaerobic digesters, which use microorganisms to break down biodegradable materials to create biogas. DVO and WTE entered into a Standard Form Agreement, created by the Engineers Joint Contract Documents Committee, un- der which DVO was to design and build an anaerobic digester for WTE. The digester was to be used to generate electricity from cow manure which would then be sold to the electric power utility. WTE sued DVO for breach of contract, alleging that DVO failed to fulfill its design duties, responsibilities, and obligations under the contract in that it did not properly design substantial portions of the structural, mechanical, and operational systems of the anaerobic digester, resulting in substantial damages to WTE. It sought over $2 million in damages and fees.

The breach of contract exclusion is set forth in an endorsement. The endorsement modifies the insurance provided under the following Parts: Commercial General Liability Coverage Part Contractors Pollution Liability Coverage Part Errors and Omissions Liability Coverage Part Third Party Pollution Liability Coverage Part Onsite Cleanup Coverage Part. App. at A119. As such, it replaces the standard Contractual Liability provision. Because the breach of contract exclusion renders only the E&O coverage illusory, one possible reformation would be to delete the applicability of the endorsement only as to the E&O Part, and contractual liability under that Part would then revert back to the terms of the original Contractual Liability provision.

But we need not determine precisely what reformation is appropriate here. DVO did not file a cross-motion for summary judgment. The district court on remand may consider DVO's reasonable expectations in securing the coverage, and can reform the contract so as to give effect to that expectation. The focus, however, must be on that reasonable expectation, which was upended by the breach of contract exclusion that rendered it illusory. The availability of third-party claims is irrelevant unless it is determined to be a part of DVO's reasonable expectation of coverage. The decision of the district court is REVERSED and the case REMANDED for further proceedings consistent with this opinion.

Reversed and remanded

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7th Circuit Court of Appeals

Case Name: Leibundguth Storage & Van Service, Inc., v. Village of Downers Grove, Illinois,

Case No.: 16-3055

Officials: BAUER and EASTERBROOK, Circuit Judges, and DEGUILIO, District Judge.

Focus: Ordinance Interpretation 1st Amendment Violation

An ordinance in Downers Grove, Illinois, limits the size and location of signs. Leibundguth Storage & Van Service contends that this ordinance violates the First Amendment to the Constitution (applied to...