Chicago Business Litigation Lawyer Blog

As Chicago business trial attorneys with substantial experience in disputes involving shopping centers, our firm was interested to see a recent Fourth District Court of Appeal decision allowing a shopping center to go through with its lease despite a restrictive covenant in a land sale by its predecessor. In Regency Commercial Associates v. Lopax, 4-06-0332 (May 4, 2007), the appeals court upheld the trial court's ruling that the business at issue was not covered by the covenant, and that starting the lease while the case was still pending did not bar it from requesting a declaratory judgment.

Regency Commercial Associates, LLC and Lopax, Inc. are companies that own neighboring parcels of land in Savoy, Ill. The prior owner of Regency's land, Arbours Development Limited Partnership, sold Lopax its land, which Lopax then leased to a Kentucky Fried Chicken franchisee. The sales contract between Lopax and Arbours restricted Arbours from allowing another "fast-food restaurant ... or restaurant facility whose principal food product is chicken[.]" It also lists the types of businesses allowed, which include "casual dining." Regency later purchased Arbours' rights under the contract.

When Regency wanted to lease to a Buffalo Wild Wings restaurant, it negotiated with Lopax, arguing that the restaurant is "casual dining" and not fast food. Lopax disagreed, saying it believed the contract restricts any restaurant that primarily serves chicken. Regency filed for declaratory judgment, asking the court to find that Buffalo Wild Wings is not fast food and that the covenant restricts only fast-food restaurants that primarily sell chicken. Finding that there was a genuine issue of material fact to try, the court denied Lopax's motion to dismiss.

During this phase, Lopax discovered that Buffalo Wild Wings franchisee had already signed a lease with Regency, contingent on the lawsuit's success, before Regency's filing. Lopax then filed for summary judgment based on nonliability for past conduct -- the legal theory that a plaintiff may not seek declaratory judgment after already taking a contract-breaching action. Regency contended that because the lease didn't take effect until the case was over, there was no lease. Lopax also moved to compel discovery of the lease. The court denied both that and the summary judgment motion. Lopax appealed both denials, as well as the denial of its motion to dismiss.

In its analysis, the Fourth District noted that the language of the restrictive covenant was ambiguous as to whether all chicken restaurants are banned, or just fast food restaurants. Using documents that illuminated the parties' reasoning at the time the contract was written, it decided that the covenant restricted only fast-food restaurants primarily serving chicken. On the issue of nonliability for past conduct, the appeals court pointed out that the lease is not effective until this case is over and none of the actions adverse to Lopax -- opening the buffalo wings restaurant -- have taken place, so Regency is not seeking to avoid liability for past conduct. Finally, the court upheld the trial court's decision that the lease was irrelevant and therefore should not be discoverable. It is worth noting that Justice Cook dissented from this decision.

As Chicago, Wheaton, Oak Brook and Naperville business trial lawyers with substantial experience with shopping center tenants disputes and shopping center tenants' rights issues, we welcome clarifications to real estate contract law, especially on restrictive covenants. If you are involved in a similar dispute over a shopping center or other commercial real estate and you would like to speak with us about your options, please contact DiTommaso-Lubin for a confidential consultation.

Posted by Peter S. Lubin and Vincent L. DiTommaso | Permalink | Email This Post

Posted In: Breach of Contract , Illinois Appellate Courts , Motions to Dismiss , Non-Compete Agreements , Real Estate , Real-Estate Litigation , Shopping Center Tenants' Rights

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As Chicago class action attorneys with a focus on consumer rights and consumer protection law, we know that renters in Chicago are fortunate to be protected by a law requiring landlords to pay interest on the renters' own security deposits once a year, as long as the tenant stays for more than six months. Section 080 of the Chicago Residential Landlord and Tenant Ordinance (PDF) also specifies that landlords must return security deposits, minus unpaid rent or reasonable costs of repairs, within 45 days of the tenant's departure. Unlike with the corresponding state law, this is true regardless of the number of units the landlord owns. If a landlord fails to comply, the tenant has the right to sue for twice the amount of the deposit, plus interest and attorneys' fees.

The ordinance also applies even if the landlord did not willfully (that is, intentionally) withhold the payment. That provision was established by the decision of the First District Court of Appeal in Lawrence v. Regent Realty Group, 307 Ill.App.3d 155, 717 N.E.2d 443, 240 Ill.Dec. 350 (1999). In that case, Aurelia Lawrence sued her landlord for withholding interest on a pet deposit. At trial, the court decided that a pet deposit is a security deposit for the purposes of the law (rather than a fee or charge). But because the landlord didn't willfully refuse to pay interest on that pet deposit, it declined to impose the penalty of twice the deposit plus interest and attorney fees. Lawrence moved for a new trial, which was denied, and appealed to the First District.

In its analysis, the appeals court noted that it did not need to decide whether the landlord actually did willfully fail to pay; what mattered was whether the ordinance required willfulness in the first place. In order to require willfulness, the court wrote, a law must be penal (intended to punish) rather than remedial (intended to make the victim whole). Both sides agreed that the case turned on the issue of penal versus remedial. The court first decided that its decision should not be controlled by Szpila v. Burke, 279 Ill. App. 3d 964, 665 N.E.2d 357 (1996), in which the appeals court decided that a tenant was entitled to damages once rather than for each separate violation of the ordinance. In that case, the First District said, it found willfulness because to do otherwise would give a result that was out of proportion to the violation and unjust. A similar case, Namur v. Habitat Co., 294 Ill. App. 3d 1007, 691 N.E.2d 782 (1998), was dismissed because it did not address the question at issue here.

In this case, the court looked to legislative intent to guide it as to whether the Landlord and Tenant Ordinance is remedial or penal. The plain language of Chicago Municipal Code sec. 5-12-010 states that the ordinance "shall be liberally construed ... to promote its purposes and policies," it noted. The court then cited an entire paragraph from Friedman v. Krupp Corp., 282 Ill. App. 3d 436, 668 N.E.2d 142 (1996), in which it had previously written that the ordinance is remedial, because the law itself says its purpose is to establish rights and obligations in the landlord-tenant relationship and to promote the public welfare. Viewing it as penal would undermine the goals of the ordinance, wrote the court. Thus, the appeals court remanded the case to trial court, with instructions to enter judgment for "double damages" plus interest for Lawrence, and to hold a hearing on attorneys' fees.

This decision established that tenants do not need to prove that a landlord willfully withheld the security deposit interest they're owed -- only that the landlord did so. This is an important tool for us as Chicago tenants' rights lawyers, because it allows us to pursue valid cases that might otherwise have been actiionable. From offices in Chicago and Oak Brook, DiTommaso-Lubin handles tenants' rights cases like this, both for individuals like Lawrence and as class actions that bring together neighbors harmed by the same landlord's illegal practices. If you believe your landlord has illegally withheld your security deposit or its interest and you'd like to pursue a claim, please contact our Oak Brook and Chicago class action lawyers for a free consultation outlining your legal options.

Posted by Peter S. Lubin and Vincent L. DiTommaso | Permalink | Email This Post

Posted In: Consumer Fraud/Consumer Protection , Consumer Protection Laws , Illinois Appellate Courts , Real Estate , Real-Estate Litigation , Tenants' Rights

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New guidelines for fighting fraud have just been released by three leading professional organizations. "Managing the Business Risk of Fraud: A Practical Guide" is sponsored by the ACFE, The Institute of Internal Auditors (IIA), and the American Institute of Certified Public Accountants (AICPA). Principles for establishing effective fraud risk management, regardless of the type or size of an organization, are outlined in the guide.

Download "Managing the Business Risk of Fraud"

Our commercial litgation attorneys work closely with auditors, accountants, forensic accountants and certified fraud examiners to determine the extent of the damages your business has suffered due to fraud. We bring suit to recover the lost funds. Our experienced business and commercial litigation attorneys with offices in or near Naperville, Wheaton, Oak Brook and Chicago have helped businesses and individuals recover substantial losses in individual or class action lawsuits arising from business fraud by vendors, employees and others. To review a summary of the business and fraud lawsuits we have handled click here. To contact us for a free consultation about business fraud or other business litigation issues fill out the form on the left side of this blog or click here.

Posted by Peter S. Lubin and Vincent L. DiTommaso | Permalink | Email This Post

Posted In: Billing Fraud , Breach of Fiduciary Duty , Certified Fraud Examiner , Class-Action , Forensic Accountant

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