Chicago Business Litigation Lawyer Blog

In a case of first impression, the Illinois First District Court of Appeal has ruled that copy shop Kinko's may not be held liable under the Illinois Notary Public Act for misconduct by a notary it employed, but may be held liable for common-law negligence. In Vancura v. Katris, No. 1-06-2750 (Ill. 1st. Dec. 26, 2008) , the appeals court found that Kinko's did not consent to the misconduct and vacated $233,000 in jury awards.

Plaintiff Richard Vancura helped fund a real estate investment by defendant Glenn Brown, who had trouble reselling the property. A mutual acquaintance, Randall Boatwright, agreed to give Vancura shares in his company in exchange for Brown's debt to Vancura, which he agreed to lower. Brown then struck a related deal giving defendant Peter Katris an interest in the property and arranged a real estate closing at which all of these deals would be sealed. Boatwright and his business partner had Vancura sign some papers on the day before the closing, but then realized that some would have to be notarized. They visited a local Kinko's for that purpose, but without Vancura. One of the documents they left with had purported signatures from Vancura and Gustavo Albear, the notary.

Several months later, Vancura called Brown and discovered that Brown believed the debt was resolved. Vancura, who had not been paid, did not agree, and eventually sued a variety of defendants, including Albear and Kinko's; Brown and Katris also sued those defendants, along with Boatwright. After a bench trial, the trial court found Kinko's liable to Vancura, Brown and Katris for violations of the Notary Public Act as well as negligent supervision and training of Albear. Kinko's appealed both.

In its analysis, the appeals court dismissed Kinko's arguments on the common-law negligence claims, citing the company's failure to cite a relevant authority as well as substantial expert testimony that the training and storage provided to Albear by Kinko's was inadequate. On the statutory claims, however, the court was more friendly to the defense. The Notary Public Act makes employers liable for a notary's "official misconduct" if the employer "consented" to the misconduct. The majority pointed out that Kinko's had never actively encouraged or tolerated misconduct by Albear, nor had it knowingly let previous misconduct slide.

Thus, the court concluded, the trial court was wrong to award damages based on the Notary Public Act claims; it vacated those judgments. Justice O'Malley dissented, however, saying that he would have reversed the statutory ruling for different reasons. The record shows Kinko's took substantial trouble to train its employee, he wrote, showing that it did not consent to any misconduct. In fact, wrote Justice O'Malley, the common-law ruling should also have been reversed because it was based on inadmissible evidence -- irrelevant expert testimony from a notary law expert -- among other problems.

The consumer protection law firm of DiTommaso-Lubin helps consumers harmed by businesses' fraud or other illegal activities. Based in Chicago and Oakbrook Terrace, Illinois, we defend clients throughout Illinois and the United States from violations of privacy, billing fraud and more. If you believe you've been harmed by this type of deceptive business practice, please contact us to learn more about your legal rights.

A trial court was correct to find a breach of fiduciary duty in a real estate partnership, the First District Court of Appeal ruled March 27. In 1515 North Wells LP v. 1513 North Wells LLC, No. 1-07-1881 (Ill. 1st. Dist. March 27, 2009), the appeals court also upheld the lower court’s rulings that one partner had breached his contract and that denied him a chance to amend his complaint to pierce the corporate veil.

The case grows out of a real estate development deal struck in 1997. Thomas Bracken, Mark Sutherland, Alex Pearsall and an uninvolved fourth partner formed 1515 North Wells LP, a limited partnership, to develop a condominium with retail space. Sutherland and Pearsall then created SP Development Corporation to serve as the general partner of 1515 North Wells LP. Bracken separately created 1513 North Wells LLC to own space in the building that was to be a health club. Bracken borrowed $250,000 to pay for his part of the property, and signed a note saying he agreed to pay it back no later than 15 days after receiving a financial statement from 1515 North Wells. He further agreed to pay it even if there was a dispute, then wait for a refund later.

To begin development, SP, the general partner, solicited bids for a general contractor. It hired yet another Sutherland and Pearsall company, Sutherland and Pearsall Development, even though its bid was the only one received that failed to state a maximum price for the project. The same general contractor, not 1515 North Wells, later received the profits from condominium upgrades.

In 2001, Bracken received his financial statement but did not pay back the loan, claiming the accounting was inadequate. The next year, 1515 North Wells sued him for breach of contract. Bracken countersued SP, and Sutherland and Pearsall as individuals, for breach of fiduciary duty, citing the choice of their own company as general contractor. SP was granted summary judgment on Bracken’s breach of contract issue, and the individuals were granted summary judgment on breach of fiduciary duty as to them personally. Bracken was unsuccessful in his own request for summary judgment, finding that there were genuine issues of material fact to address at trial.

The court also denied Bracken leave to amend his complaint to pierce the corporate veil and find Sutherland and Pearsall personally liable for the alleged breach of fiduciary duty. Bracken’s request came in 2005, seven weeks before trial and after the issue had been raised in previous filings. However, the judge in the case retired, delaying trial. At a bench trial in December of 2005, the court found for Bracken on the breach of fiduciary duty claim. Bracken then petitioned for reconsideration of the summary judgment against him and of the denial of leave to amend his petition, in light of the court’s finding. The new judge did not change the first judge’s rulings, and in fact, amended the judgment against Bracken to include more interest and attorney fees.

Everybody appealed to the First District. On appeal, Bracken argued that the trial court erred in finding him liable for breach of contract in repayment of the loan, and in not allowing him to amend his complaint to include a request to pierce the corporate veil. SP argued that the trial court should not have found a breach of fiduciary duty because of language in the partnership agreement for 1515 North Wells.

The First District started its analysis by quickly affirming the trial court’s rulings against Bracken. It was undisputed that Bracken was contractually obligated to pay the money back, the court said, and it was undisputed that he did not repay it. Thus, summary judgment on the breach of contract issue was entirely appropriate.

It next looked at Bracken’s claim for amending his case to include a count for piercing the corporate veil. Bracken argued that he had repeatedly made that request but had not been allowed, starting at least 16 months before trial. However, the court found no evidence in the record that Bracken had done so. It further concluded that the motion he did make, seven weeks before trial, was not timely. Bracken did not make his request until nearly three years after the case was filed, the court reasoned, and had no way of knowing that the late-September trial would be postponed further. In fact, allowing an amended complaint at that late date would have been prejudicial, the First District wrote.

Finally, the appeals court dismissed SP’s argument that the trial court erred in finding it breached its fiduciary duty. SP relied on language in the partnership agreement providing that partners may engage in whichever activities they choose without financial obligation to the partnership. However, the appeals court said, the Illinois Uniform Partnership Act specifies that a partnership agreement may never eliminate or reduce a partner’s fiduciary duties. Furthermore, there was ample evidence at trial that SP breached its fiduciary duty, including the “cost plus” contract with the contractor and the fact that it did not route condo sales profits back to the partnership. Thus, the First District upheld the trial court’s decisions on all counts.

Based in Chicago and near Naperville, Ill., DiTommaso-Lubin handles partnership and shareholder, and family business disputes including such disputes involving real-esate partnerships, and other business ventures for businesses, partnerships and corporations of all sizes, from closely held family businesses to larger enterprises. Our Chicago and Oak Brook commercial litigation attorneys represent businesses in state and federal courts, and alternative dispute resolution, throughout Illinois, Indiana and Wisconsin. DiTommaso-Lubin's goal is to minimize our clients’ financial risk and avoid disruptions to their business as much as possible while still protecting their legal rights. If your business, corporation or partnership is involved in an Illinois business lawsuit and you would like to learn more about how we can help, contact DiTommaso-Lubin today for a free consultation.

In a Chicago legal malpractice lawsuit, the First District Court of Appeal has ruled that the defendant is not barred from certain defenses because the plaintiff improperly joined the malpractice claim with its underlying action. Preferred Personnel Services, Inc. v. Meltzer, Purtill & Stelle, LLP, No. 1-08-0389 (Ill. 1st. Jan 23, 2009).

Preferred is a staffing company with a claim against insurance broker Arthur J. Gallagher & Co. Gallagher told Preferred that it had secured malpractice insurance for the company and accepted payment for those services, but Preferred later discovered that it had no insurance. Preferred hired Illinois law firm Meltzer, Purtill & Stelle to sue Gallagher, but the firm never started its case. More than two years later, Preferred and its new lawyers sued Gallagher for breach of contract, negligence and fraud. In the same suit, it also sued Meltzer and one of its attorneys, Thomas Palmer (collectively “Meltzer”), for malpractice.

Gallagher moved to dismiss because the statute of limitations had passed in 2001, a motion that was granted by the trial court and upheld by the appellate court. While that motion was pending, Meltzer moved to dismiss the claims against it, saying the malpractice claims were premature because the underlying claim was still viable until the appeals court had ruled. This motion was denied. After the appellate decision on the Gallagher dismissal, Preferred moved for partial summary judgment, asking the court to foreclose arguments by Meltzer that the statute had not run on the Gallagher claims. The trial court granted this motion, but also certified three questions for the First District Court of Appeal to answer:

1. ”Did the Legal Malpractice Defendants in this action have standing to oppose the Company’s [Gallagher’s] Motion to Dismiss where the Legal Malpractice Defendants’ motion based on prematurity was pending?


2. Are the Legal Malpractice Defendants in this action collaterally estopped from
   raising an issue that was decided in favor of the defendant Company where the Legal
   Malpractice Defendants’ motion based on prematurity was pending and notwithstanding
   facts which might have changed the outcome?


3. Did the ruling on the statute of limitations when it was decided in favor of a
   separate defendant become the ‘law of the case’ as it relates to the claims against the
   Legal Malpractice Defendants and notwithstanding facts which might have changed the
   outcome?”

The court started its analysis by noting that it would not address Meltzer’s request to reverse the summary judgment ruling against it. It then explained that this case presents an unusual situation: A legal malpractice claim joined with the claim that underlies it. Preferred raised multiple arguments for this approach, all of which the appeals court rejected. Preferred’s true reason for joining them, the court noted, was explicitly stated in the Gallagher appeal: “To foreclose Meltzer-Palmer from arguing that Preferred prematurely abandoned a viable claim against Gallagher.”

However, the court did not accept Meltzer’s argument that it lacks standing to be joine in the argument. Instead, the court said, the issue is prematurity, citing Weber v. St. Paul Fire & Marine Insurance Co., 251 Ill. App. 3d (1993). To win a legal malpractice claim, plaintiffs must show they have been damaged -- which would include a dismissal of the case, the court said. Because there was no dismissal at the time Preferred filed its legal malpractice claim, the claim was not ripe. Thus, the court answered its first question in the negative: Meltzer had no standing to oppose Gallagher’s motion to dismiss, though it felt that ripeness was the real problem.

For similar reasons, it also answered the second question in the negative: Meltzer was not collaterally estopped from relitigating the statute of limitations in the Gallagher claim. Preferred argued that Meltzer should be estopped because it had failed to weigh in on Gallagher’s motion to dismiss or Preferred’s own appeal. The court had several reasons for finding this untrue: The firm had not previously litigated the question; Illinois courts generally do not favor offensive use of collateral estoppel; and most importantly, the doctrine cannot be used in Illinois unless it results in no unfairness to the defendant. Kessinger v. Grefco, Inc., 173 Ill. 2d (1996).

Finally, the court addressed the “law of the case” doctrine, which prohibits courts from relitigating issues that had already been decided in a related case. This doctrine is not binding on a trial court that’s considering different issues, different parties or different facts, the First noted. In this case, Meltzer was not a party to the Gallagher appeal, and the issue of alternative legal theories against Gallagher was not exhausted anyway, the judges wrote. Thus, it answered the third question in the negative as well and remanded the matter to the trial court.

DiTommaso-Lubin is a business trial and litigation law firm based in Chicago and Oak Brook, Illinois. Our Illinois legal malpractice attorneys help wronged clients seeking to hold their former lawyers responsible for costly mistakes. We also handle Illinois legal malpractice litigation for attorney clients seeking to defend themselves from a malpractice claim. If you’re in this position and you would like to learn more, please contact our firm online for a confidential consultation.

In a partnership dispute and breach of fiduciary duty claim, the First District Court of Appeal has ruled that an attorney may sue his former firm, but not his former partners. In Kehoe v. Harrold, Wildman, Allen & Dixon, No. 1-07-0435 (Ill. 1st Dec. 23, 2008), Robert Kehoe, a former partner in the firm, sued after partners voted to change him from equity partner to nonequity partner. That is, they voted to end his part ownership of the firm and make him a salaried employee.

In 1995, after Kehoe had been a partner in Harrold Wildman for sixteen years, the firm renegotiated its financing with its bank, a deal that required every equity partner to execute a personal guaranty acceptable to the bank. Kehoe objected to the proposed guaranty and was unable to find a compromise, despite offers to draft his own version. The bank allowed the firm to take out its loan anyway. Later, the firm amended its loan agreement with the bank to eliminate the guaranty requirement but specify that partners without a guaranty are personally liable for the full amount of the debt. A few months later, partner Eisel approached Kehoe about his lack of a guaranty, and Kehoe replied that the amendment made it unnecessary.

The firm's management committee then met and adopted a resolution allowing a two-thirds vote of partners to change the status of any partner who failed to execute a guaranty. Kehoe was present and objected, and rebuffed later advice to sign the guaranty. The partners later voted to remove his equity status per the resolution. Over the next two days, Kehoe moved his clients to a law firm of his own; he also requested his equity be paid out and was denied. He sued individual partners, claiming they breached their fiduciary duty by advocating the resolution, and the firm as a whole for breaching their obligation to pay his equity share.

At trial, the case turned on the definition of "involuntary withdrawal" in the firm's partnership agreement; Kehoe was only entitled to equity payment if he was involuntarily withdrawn. The jury decided that he was, finding both the firm and certain partners in breach. All of the defendants appealed, claiming they were entitled to judgment notwithstanding the verdict based on the fiduciary duty claim. The partners also appealed, arguing that they were entitled to a new trial because the manifest weight of the evidence favored them and because of errors by the court.

The appeals court started by examining the dispute over whether the partnership agreement was ambiguous in its definition of "involuntary withdrawal," a basis for both of Kehoe's successful claims. The appeals court agreed with the trial judge that it was, and allowed the jury's decision based on that finding, to hold the firm liable for failing to pay Kehoe's separation benefits, to stand. It next turned to the decision against individual partners, which held them personally liable for failing to pay Kehoe. The language of the partnership agreement mentioned only the firm's obligation to pay, but Kehoe argued that partners should be individually liable based on obligations of partners under Illinois partnership law.

The judges disagreed, pointing out that Kehoe did not use a partnership cause of action. A plain reading of the partnership agreement did not support him, they said, and he could not pick and choose which language in the contract applied. Thus, the partner defendants were entitled to judgment notwithstanding the verdict on breach of contract. Kehoe also alleged that partner defendants had breached their fiduciary duty to him by misinforming the partnership before the vote. Again, the appeals judges disagreed: "The allegations set forth by the plaintiff do not remotely come close to the [defendants'] fundamental duty." The partners did not deprive the partnership of profits, the court said, as required to find a breach of fiduciary duty. Thus, the First reversed the lower court's decision as to the partner defendants and upheld it as to the firm itself.

The business litigation law firm of DiTommaso-Lubin focuses on this type of partnership dispute, as well as disputes involving closely held businesses, franchise businesses and corporate shareholders. Based in Oak Brook and Chicago, we represent businesses and individuals throughout Illinois as well as in Wisconsin and Indiana. If you have a business-related dispute, we can help. Please contact us online for a confidential consultation.

A client list and information on clients’ computer networks do not qualify as trade secrets under the Illinois Trade Secrets Act, the Fifth District Court of Appeal decided April 13 in a business trade secrets lawsuit. In System Development Services v. Haarman, No. 04-CH-30 (Ill. 5th 2009), System Development Services (SDS) sued four former employees who left to start a competing business offering networking services to businesses in Effingham County. A trial court found that the defendants had misappropriated a list of clients and potential clients, as well as information on SDS clients’ networks, but the Fifth District Court of Appeal overturned that decision.

SDS sets up and maintains computer networks for local businesses. It maintains a database of clients and potential clients, and stressed to employees that both the list and the clients’ network information should be kept private. Defendants Timothy Haarman, Jason Repking, Rick Hoene and Terry Oldham left SDS after a bad financial year and started a competing business, Technical Partners. None had signed a restrictive covenant limiting their right to compete with SDS. However, when starting out, they sent out a mailing to potential clients that SDS thought was suspiciously similar to addresses in its client database. They also relied on former SDS customers during their first month inbusiness. SDS sued them for violations of the Illinois Trade Secrets Act and breach of fiduciary duty.

At a bench trial, the plaintiff testified that some of the addresses at issue contained information not found in the telephone book, and that work orders and emails were deleted from their system shortly before defendants left. However, the company’s owners told the court that they had no personal knowledge that a client list was stolen. The defendants testified that they made their mailing list using the phone book, the Internet and a chamber of commerce listing. They also relied on client relationships formed at SDS and personal connections. One defendant testified that no special knowledge other than the ordinary knowledge of a network technician was necessary to serve SDS and Technical Partners clients.

The trial court found for the plaintiff on the Trade Secrets Act claims as to misappropriation of the SDS client list and information about clients’ networks. It granted damages and an injunction stopping them from competing with SDS. The defendants appealed.

On appeal, the Fifth District Court of Appeal reversed that decision, saying that the client list and information about customers’ networks did not qualify as protectable trade secrets under the Trade Secrets Act. To qualify as a trade secret, the court said, information must give its owner a competitive advantage in business, and the owner must make an effort to keep it secret. Illinois common law also requires judges to evaluate how well known the information is, the effort it took to develop it and the difficulty others would face in acquiring it.

Under these standards, the court wrote, neither the SDS client list nor its customers’ network information were “sufficiently secret” to merit protection as trade secrets. The businesses’ contact information is readily available from multiple sources, and many businesses on the client list were only potential clients, the justices pointed out. It cited no fewer than six Illinois and federal cases holding that client lists were not trade secrets, including the First District Court of Appeal’s decision in Office Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d 557 (1992). As to the network information, no evidence at trial showed that SDS installed proprietary networks, and the information the defendants did have was no more than the general skills and knowledge inevitably gained from employment. Thus, the Fifth District wrote, there was no trade secret to steal, and the judgment of the trial court was reversed.

The business litigation law firm of DiTommaso-Lubin handles all types of business disputes, including lawsuits over theft of trade secrets, violations of restrictive covenants and breach of fiduciary duty. With offices in Oakbrook Terrace, near Naperville, Ill., and Chicago, our business litigation and business trial attorneys handle many different types of business disputes, including shareholder and partnership lawsuits, breach of contract claims and real-estate disputes from around the state of Illinois, as well as in Indiana and Wisconsin. For more information about the types of cases we handle and a summary of our litigation and trial experience click here, If you have a business litigation matter in state or federal courts and you would like to learn more, please contact DiTommaso-Lubin via email or call 1-877-990-4990 to set up a confidential consultation.